The new-vehicle market could grow by between 8% and 10% this year, reaching a level of 500 000 units, says Standard Bank South Africa (SBSA) automotive retail finance head Cyril Zhungu.
“After a series of unprecedented events over the past two years owing to the Covid-19 pandemic, the automotive industry has, to a large extent, remained resilient as growth surpassed expectations in 2021 to reach 22% over 2020.
“A combination of back-orders, normal replacement patterns, pure organic growth and recovery of the hospitality industry added to a mixed bag of positive outcomes, for the market to end with 464 122 new-vehicle sales in 2021.”
Zhungu adds, however, that it should be noted that the decline in vehicle sales had bottomed out prior to the onset of the Covid-19, with the already upward trajectory disrupted directly by the pandemic itself, both in local and export sales.
“The very essence of the pandemic resulted in some significant changes to the supply and demand dynamics within the automotive industry globally as export countries recovered at different levels and local business operating models also changed to manage continuity.
“In our attempt to join the dots, it is noted that the local drivers for vehicle demand are somewhat unique, given the nature of the South African market and how the country responded to some of these changes,” says Zhungu.
In the local market the ratio of new to pre-owned vehicle sales from applications processed and units financed by SBSA still reflects a preference for pre-owned vehicles, which may be attributed to price sensitivity to vehicle-price inflation and general level of affordability in the market.
Also, the volume of applications processed for vehicle finance by Standard Bank remained stable – at a high level – indicating strong demand for vehicles.
The average age profile of the South African car parc also remains skewed towards ten years, implying a possible stable and on-going replacement trend going forward.
In addition, the low interest rates following intervention by South African Reserve Bank in 2020 as part of its Covid-19 response, created an opportunity for new demand as customers took advantage of the low interest environment to replace their vehicles.
Demand generation through vehicle model renewal and new-vehicle model introduction also remains a key factor in stimulating new-vehicles sales, as this normally comes with various sales support incentives for customers.
“South Africa vehicle manufacturers, importers and distributors have become very proficient at responding to any changes in consumer demand trends by using tactical supply and support strategies for different market segments to meet affordability, business and lifestyle needs,” says Zhungu.
Recovery of the hospitality industry as Covid restrictions loosened also had a direct impact on the positive revival of the rental industry, whose replacement cycle nudged along sales in 2021.
“There remain residual supply-side back-orders following the component and chip shortages widely reported in 2021, all of which are expected to settle down soon, thus providing a stable vehicles-sales projection for 2022,” adds Zhungu.
However, he notes that there are some downside risks within the South African economy related to increased levels of unemployment following business closures and the rationalisation of operations within SA Inc.
There is also an increase in consumer debt levels as reflected in the change of the country’s debt-to-disposable income ratio from 71.9% in 2018, to 77% in 2020, which, together with a possible upward adjustment to cost of credit as interest rates normalise again by at least 50 basis points in 2022, may affect the projected growth in vehicles sales.
“With all that said, we remain of the view that it is not unrealistic to expect further growth in vehicles sales by at least 8% in 2022, driven by normal organic growth in demand for private and business use, back orders, together with the replacement factor which, for new vehicles, is often well supported by vehicle manufacturers through additional sales incentives,” says Zhungu.