Vehicle and asset finance group WesBank on Tuesday said it expected domestic new vehicle sales to decline by 4.4% in 2014.

The group originally forecast a 0.6% decline over 2013.

WesBank motor division GM Simphiwe Nghona said in Johannesburg that he expected new passenger car sales to drop by 6.6% in 2014 compared with last year, while light commercial vehicle (LCV) sales were expected to remain flat.

The original forecast was for car sales to drop 2%, and for LCV sales to grow by 2%.

Truck and bus sales would probably gain 2% in 2013, down from the original expectation of a 4% gain, said Nghona.

He noted that he was reluctant to gaze into the crystal ball to see what 2015 held, as much of what happened would be dependent on economic conditions in the last quarter of the year. For example, the continuously weakening rand could push up new vehicle prices further, impacting new vehicle sales next year.

Nghona said short- and medium-term new vehicle sales would be driven by a supply push, such as incentives offered by vehicle manufacturers and dealers.

Despite this week’s appointment of a new Reserve Bank governor, he also believed that the interest rate curve “would remain shallow”.

He said there was a degree of comfort in the fact that deputy governor Lesetja Kganyago – “someone from within the system” – had been named to replace Gill Marcus.

CREDIT APPLICATIONS AND USED CARS
Despite slowly rising interest rates, consumer demand for vehicle finance remained robust, with September seeing a record number of applications, at a 21% increase, year-on-year.

An increasing number of buyers were also seeking value in the used car market.

Applications for used vehicle finance grew 29%, year-on-year, in September, with the used-to-new vehicle sales ratio currently sitting at 1.42 : 1.

This represented year-on-year sales growth of 16% in the used market.

This year’s used car market was estimated to number between 1.3-million and 1.4-million units by December 31.

Consumers were also spending more in 2014, with the average transaction value for new and used vehicles continuing to rise in line with inflation, said Nghona.

The average new vehicle transaction price had increased to R256 695 in September, while the average used car value had broken the R170 000 mark for the first time, at R171 893.

In January 2007, the average new vehicle transaction price was below R150 000, with average used car value below R100 000.

The use of extended finance contract periods had held steady, with the current average at just over 69 months.

Buyers were also holding on to their vehicles for longer, although not long enough, said Nghona.

On average, buyers were replacing their vehicles after 35 months – 13 months before the vehicle’s value had reached break-even point with the outstanding loan amount.

This shortfall was normally funded by dealers through various trade-in assistance programmes.

“With little leeway in household budgets, consumers will start to feel the pressure when the knock-on effects of inflation and an ailing rand start taking their toll,” added Nghona.

“Vehicle replacement cycles could be delayed, or buyers will move to the used market to find better value.”

DEALER CONFIDENCE
The third quarter WesBank Vehicle sales Confidence Indicator (WVsCI), released on Wednesday, showed that dealer confidence was at a high for 2014 – and at a level last seen in April 2013.

The sales outlook was positive, as with the previous quarter, despite July’s slight interest rate hike of 25 basis points.

It was clear that dealers expected business to improve over the next three- and six-month periods.

Confidence levels were positively influenced by new model launches, a stable interest rate that was still relatively low, and marketing activities by vehicle manufacturers.

Even though 2014 had only seen two interest rate hikes, totalling 75 basis points and bringing the prime rate to 9.25%, the interest rate was still viewed as the biggest factor limiting activity on showroom floors.

Dealers also cited uncertainty around labour action as a concern. Future industrial action was expected to negatively impact economic growth, resulting in a weaker exchange rate, higher new vehicle prices, and increased inflation.