Auto sector banks on low rates for recovery
The automobile is banking on declining interest rates to provide some relief for an industry battered by COVID-19.
New vehicle sales plunged by 98.4% last month – reflecting the impact of the lockdown on the industry.
National Association of Automobile Manufacturers of South Africa CEO, Michael Mabasa, said the April new vehicle sales and export figures represent a barometer of the COVID-19 impact on the automotive industry and the broader economy.
“The industry is under no illusion that this is going to be a very difficult year ahead. However, the cut of the interest rate by a further 100 basis points during April 2020 will not only assist indebted consumers and businesses in the short term, but also help restarting industry sales once the country resumes business,” Mabasa said.
The South African Reserve Bank has cut interest rates by a combined 200 basis points (2%) since the outbreak of COVID-19.
This means the repo rate, or the rate at which the Reserve Bank lends money to commercial banks, is now at 4.25%, the lowest since it was introduced in 1998.
Lara Hodes from Investec said consumers were already under severe pressure even before the onset of the pandemic, amid an environment of slowing wage growth and rising unemployment.
“The anticipated substantial deterioration in household balance sheets going forward will likely continue to put pressure on passenger vehicle sales, even once full production resumes,” Hodes said.
“We are anticipating a contraction in GDP of around 4.8% year on year in 2020, with risks tilted to the downside, depending on how quickly the virus is contained. This does not bode well for vehicle demand in the near term.”
This month, the government allowed car manufacturers to resume production, albeit at 50% capacity, as part of its risk-adjusted strategy to reopen the already ailing economy.