STABLE INDUSTRY South Africa’s automotive industry is still profitable and will remain so even if sales drop by 2% to 3% this year
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Overall new-vehicle sales in South Africa dropped 3% year-on-year in 2014, with 630 000 vehicles sold, compared with the 650 000 sold in 2013, says fleet administrator Imperial Fleet Management CEO Nicholas de Canha.
“Despite the overall market being slightly down, the sales for bus, truck and light commercial vehicles (LCVs) increased. The real drop was in passenger vehicles, which dropped by 5.5%,” he explains, adding that passenger and LCVs comprise about 88% of South Africa’s automotive market.
De Canha tells Engineering News that 2014 was a stable year, capping off with impressive growth since 2009 – the worst year for the local automotive industry, which managed only 360 000 vehicle sales. He adds that the local automotive market peaked in 2006, with 714 000 new car sales.
De Canha points out that 2009’s poor performance was mostly a result of the 2008 economic downturn.
“I think this year’s results will follow on from last year’s, as there is little indication that South Africa’s economy will grow. However, the South African automotive industry is currently still profitable and will remain so, even if it drops another 2% or 3%.”
De Canha further points out that car retail sales, especially imported vehicle brands, were adversely impacted on by the deterioration of the rand.
“Towards the latter part of 2014, there was some credit withdrawn from the market, as banks took a forward look at our economy, which was downrated last year by ratings agencies Moody’s and Standard & Poor’s. There was also a decline in the exchange rate of the rand, which added a lot of inflationary pressure on the economy, therefore resulting in stagnant interest rates despite the poor overall economy. The two factors combined led to a more cautious approach by the banks when it came to approving vehicle finance, making it difficult for marginal consumers to enter the market,” he explains.
He adds that, while the current outlook for the local automotive industry remains positive, there is very little scope for growth, especially since South Africa is not creating any new jobs. The industry will, therefore, struggle to expand beyond the current levels, which should remain the same for the next four years if no middle-class jobs are created.
De Canha points out that Australia, with a population of about 23-million – of which about 12-million are employed – sells a million cars a year. South Africa sells about 650 000 cars a year, has a population of about 53-million, but only employs about 75% of the number of people that Australia employs.
“It is difficult to argue that vehicle sales will increase, as consumers need to earn enough money to [qualify for] the vehicle finance needed to buy a vehicle,” he concludes.