Green shoots evident in local economy, says NADA chairperson

28th September 2020

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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“There is a natural tendency for South Africans to look at the negative aspects of the nation’s economy under lockdown, but if we look on the brighter side, green shoots are in plain view,” says National Automobile Dealers’ Association (NADA) chairperson Mark Dommisse.

“Firstly, we are pleased with South Africa’s handling of the pandemic crisis. In mid-September, the seven-day average infection rate was 1 627 per day, which is vastly different from the peak of 13 944 infections per day on July 24.

“The result of this massive decline has been a move to lockdown Level 1, with doors opening for the under-pressure travel and tourism markets. 

“This positivity is especially important, as lockdown risk and stress are economic inhibitors linked directly to purchase decisions by consumers and investments by businesses,” says Dommisse.

“One of the most important indicators for the motor industry is record low interest rates. This could be a game changer going forward if the Reserve Bank is able to maintain the current low levels for the next two years,” he adds.

“The automotive industry could see hugely positive results as consumer appetite for bigger-ticket items ramps up in the wake of decreased total finance costs.”

Dommisse says this situation is already having an effect on sectors such as the residential housing market.

He says a Huizemark survey showed impressive residential dwelling sales volumes for the past three months. Levels in some months have been even higher than pre-lockdown, indicating pent-up demand in a buyer’s market. 

Demand is particularly strong in the under R2-million segment where mortgage rates are similar to rental costs. The banks are also reportedly granting loans in the above-R3-million market with relative ease.

“Indicative mortgage bond production data coming from the market showed a natural decline due to lockdown,” comments Huizemark Group MD Bryan Biehler.

“The same data shows bond values in July and August are up 50% on pre-Covid levels. This is brilliant news for our economy as the low interest rate has created a favourable investment and buying climate.”

Dommisse notes that South Africa fortunately also has a low inflation rate, which was running at just over 2% until August 28, when the Consumer Price Index jumped to 3.2% year-on-year, mainly owing to fuel price and municipal tariff hikes.

“However, inflation needs to be slightly higher and closer to the Reserve Bank’s band of 3% to 6%, as it is a measure of economic strength.”

Dommisse says it is also important to note that the rand exchange rate is holding up comparatively well, following a ratings downgrade to junk and the recent huge gross domestic product (GDP) tumble, but that the exchange rate did not reach the R20 to the US dollar mark previously predicted by some financial experts.

“More good news is that mining stocks have shown a 300% increase in earnings before interest, taxes, depreciation and amortisation, which is seen as a proxy for cash flow in that business sector,” he adds.

“Agriculture is also doing well, as producers have had lots of rain, together with six months of good sales volumes and prices during lockdown.

Another indicator for the retail motor industry in particular is the increasing traffic flow in urban areas and on the highways.

“TomTom has indicated that households are at about 90% of the kilometres travelled pre-Covid-19,” says Dommisse.

He adds that South Africa is in the fortunate position where it is able to source funds from organisations such as the International Monetary Fund, World Bank, African Development Bank and New Development Bank, which are all willing to loan the country money for the rebuilding of the economy. 

“I am, however, a realist and don’t just look at the world through rose-tinted spectacles,” says Dommisse.

“If we look at other macro-economic factors, the biggest shock psychologically speaking was the record 51% fall in GDP in the second quarter. But, this was expected, and we have moved on from there. 

“These numbers are dated and there have been big upticks in the economy, with an important one for us being a jump from selling less than 1 000 cars in April, to now selling roughly 33 000 cars a month consistently. 

“Used vehicles are also selling strongly. 

“Yes, there are ongoing concerns such as rising oil prices, a big budget deficit expected from tax collection, a lack of take-up on government bonds, the unreliable power supply from deeply-indebted Eskom, as well as the impact expected from major international events such as the American election and Brexit, but I am still confident we can weather this storm.”

This said, Dommisse notes that he does not see domestic vehicle sales volumes growing in the short term. 

“However, I think many of us have taken the opportunity to right-size our businesses. We must now take advantage of our new-found agility to react to changing conditions, which include the welcome lowering of interest rates and bank loan approval rates holding up and, in fact, being generally better than expected.”

NADA represents the interests of business persons who own, operate and manage new passenger and commercial vehicle franchise motor- and motorcycle dealerships, and qualifying used-vehicle-only outlets in South Africa. 

 

Edited by Creamer Media Reporter

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