Load shedding puts breaks on new vehicle sales momentum
Aggregate domestic new vehicle sales in January reflected an increase of 4.8%
SOUTH Africa’s automotive industry has lamented the prolonged energy crisis for slowing the momentum in new vehicle sales in January as the crippling power cuts have put brakes on economic activity.
The Automotive Business Council (Naamsa) yesterday said that the destructive higher stages of load shedding had amplified the negative impact on vehicle production and component manufacturing in South Africa.
This comes as struggling power utility Eskom intensified its rotational power cuts last month, making January 2023 the worst month in terms of the cumulative amount of load shedding the country has ever experienced in a period of a month by far.
Naamsa chief executive Mikel Mabaso said that load shedding had severely impacted not only car dealers, but the overall value-chain with devastating prospects for investment.
“Load shedding is the biggest inhibitor to drive the industry’s localisation ambitions, create sustainable jobs within the auto sector and to further attract investment opportunities into the country to grow the South African economy,” Mabaso said.
“We welcome the government’s intent announced recently to declare load shedding a national state of disaster so that urgent resources and solutions can be mobilised to assist the country to recover from the current energy crisis.”
Earlier this month, automobile dealers said the uncertainty of stable power supply was putting a great deal of extra stress on vehicle retailing and servicing, as well as affecting the viability of dealerships. According to data from Naamsa, the new vehicle market started the year on a positive, but weak note.
Aggregate domestic new vehicle sales in January reflected an increase of 2 006 units, or 4.8%, to 43 509 units from the 41 503 vehicles sold the same month last year. Naamsa said the weak performance of the new vehicle market during the first month of the year was in line with expectations of a depressed economy along with ongoing structural problems and cost of living increases.
In January, the South African Reserve Bank (SARB) raised interest rates for the eighth consecutive time since November 2021 and revised downwards South Africa’s growth forecast for 2023 to only 0.3% due to heightened power cuts and other logistical constraints.
The SARB estimated that load shedding would deduct as much as 2 percentage points from growth in 2023.
“The same challenges that confronted the economy and the automotive industry in 2022, such as persistent load shedding, high inflation and interest rates, and currency depreciation have been carried over into 2023. A close correlation exists between new vehicle sales and the country’s gross domestic product growth rate. It is expected that unpredictability in the new vehicle market will prevail, but that sales will exceed the pre-Covid-19 level in 2023.”
Export sales recorded a decline of 367 units, or 1.8%, to 20 536 units in January 2023 compared to the 20 903 vehicles exported in January 2022.
Though vehicle exports performed weaker in January, Naamsa is seeing momentum in exports remaining upward due to signs of the European economy avoiding a near-term recession while the re-opening of the Chinese economy would provide a further boost to global demand in general.
Prospects for vehicle export growth remain optimistic on the back of further new model introductions by major exporters in the domestic market.
The National Automobile Dealers’ Association (Nada) said it expected the new vehicle market in South Africa to continue growing in 2023, but at a more moderate pace than in 2022.
Nada chairperson Mark Dommisse said several factors that negatively affected vehicle sales last year will recur this year, including the ongoing global shortage of semiconductors, which was hampering production across almost all manufacturers. “This market is difficult to read, given all the disruptive external factors now in play. We believe the public is adjusting its spend downwards, but conversely, the upper end of the market is remaining surprisingly strong at the same time.
“Original equipment manufacturers and importers are bullish about sales opportunities in 2023 and are urging dealers to invest, increase their floor plan levels and dealership standards. Generally new car supply has improved and the supply of new vehicles is more consistent.
“There are still certain segments under pressure, resulting in a dealer stock mix that is not ideal. However, the wait for new models is, on average, better than a year ago, due to supply improvements.”