Bank optimistic about new-vehicle market growth in 2015

13th February 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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WesBank is rather bullish on the 2015 new-vehicle market, says the vehicle and asset finance group’s head of research, Rudolf Mahoney.

He believes it is possible for the domestic new- vehicle market to grow by between 3% and 5% in 2015, compared with last year. Also, should the Reserve Bank cut lending rates later this year, growth could exceed 5%.

WesBank predictions for the 2014 market were fairly accurate. The group believed the 2014 total new-vehicle market would contract by 0.6% over 2013. When the numbers came rolling in, they revealed a market that had dipped by 0.7%, compared with 2013.

Mahoney believes there are several factors that should contribute to positive growth in the market this year.

Banks are willing and able to provide credit, while vehicle manufacturers are bringing a raft of new models to the market, while also offering a number of incentives to attract buyers to showroom floors.

Higher-income earners should be in a position to replace or buy new vehicles this year, adds Mahoney.

Consumers have more cash in their pockets, as interest rates have remained stable following last year’s 75 basis points hike, with the last increase in July, 2014.

Interest rates are expected to remain stable in the first half of the year, says Mahoney.

“This should give consumers confidence to buy durable goods.”

New-vehicle price increases should also stabilise, along with the exchange rate. In fact, inflation-linked salary increases of roughly 6% should serve to largely neutralise any new-vehicle price jumps, which at one point ran close to 8% in 2014.

Falling oil prices have also ensured that consumers have more cash in their wallets than last year.

For the first time since 2009, WesBank’s Mobility Cost Basket has shown a decline in the costs of operating a car in South Africa.

The cost basket uses a vehicle cash price of R100 000 in 2007, increased by prevailing new- vehicle inflation, compounded annually. The average contract period from WesBank’s book is used in the calculation.

Finance calculations are based at prime plus 2%, with no balloon payment. Fuel consumption is calculated at 7 ∙/100 km over an average of 2 500 km travelled a month.

Running costs and insurance are in line with Automobile Association tariffs. The price of fuel is calculated at the prevailing fuel price for 93 unleaded inland.

According to this model, fuel now makes up R1 928.50 of a vehicle’s total running costs a month (as measured in January), down from R2 338 in 2014.

Risks to a growth year for the domestic new-vehicle market are, however, also plentiful, warns Mahoney.

Finance Minister Nhlanhla Nene could announce an increase in personal tax in his Budget speech. The rand could also weaken, negating the positive effect of lower oil prices, leading to a hike in interest rates.

Labour action could place a damper on the economy, aided by the global commodity slump and continued load-shedding by Eskom.

However, says Mahoney, even this worst-case scenario will probably see the 2015 new-vehicle market end flat, compared with 2014.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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