New-vehicle sales to recover, but market fundamentals not healthy

26th February 2021

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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New-vehicle sales will show double-digit growth this year off last year’s unforeseen low base, but will also continue to show a decline in real economic terms, says vehicle and asset finance provider WesBank.

WesBank CEO Chris de Kock says two considerations need to be taken into account when understanding what the new-vehicle market may do this year – firstly, what sales are expected to do, compared with 2020, which will provide a skewed representation of market activity, and, secondly, how the market will effectively perform in a normalised economic outlook, which will provide a more accurate depiction of activity.

“It’s not difficult to imagine that the market will perform better than in 2020,” says De Kock. “But the industry cannot find confidence in this theoretical growth at the risk of losing sight of the very real impact the weak South African economic environment will continue to have on the South African motor industry.”

Given the economic and sociopolitical challenges facing the country – both as a result of Covid-19 and those evident in trends that were already being experienced prior to 2020 – it is likely that both business and consumer confidence will remain subdued.

WesBank’s prediction for the 2020 market prior to the pandemic saw a market down 3.5%, to 518 000 units.

The unprecedented reality was a 29.1% slump for the year, down to 380 449 units.

“If we normalise the sales number to exclude the effects of Covid-19, we think we were slightly light on that outcome,” says De Kock.

“If we look at the performance in the first two months of 2020 and impute that for the whole year, and combine it with the actual economic degradation, we think we would have seen a market that would have been down 5.7% for the year, or a theoretical market of 506 056 sales.”

Based on this normalised baseline, WesBank predicts a continued worsening economic impact on new-vehicle sales during 2021, which will result in a market total of 426 000 units, or a decline of 15.8%.

In actual terms, but relative to 2020 sales, this would, however, represent growth of 12%.

“Looking at these figures in the context of annual sales since 2000, one would have to go back to 2009/10 to find the last time we had figures similar to these, showing how new-car sales have been negatively impacted by the slowdown in the South African economy,” says De Kock.

He emphasises that many of the shocks experienced at the onset of the pandemic were not necessarily new experiences.

“Many of the economic impacts exacerbated by the pandemic were previously experienced in 1998, 2001 and 2008, when global growth collapsed and commodity prices and exchange rates fell in a global recession.”

Buying-Down Trend Continuing
“The buy-down trend, where customers are seeking to reduce their monthly instalment by buying a more affordable vehicle, continues to be a reality for many consumers,” says De Kock.

“The evidence of this can be seen in the market growth of new-car segments that offer lower-priced vehicles, with customers willing to substitute high-profile brands for more practical and affordable options.”

The used-car market has also been exceptionally strong in the last six months, driven by customers seeking to downscale their vehicle-related costs.

“The substantial shift towards the used-car market is being driven mostly by the buy-down effect, but also by an increase in new-car vehicle prices averaging close to double digits in the past year, and stock shortages due to Covid-19.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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