Rand’s depreciation will affect new car prices

SUSTAINED weakness in the value of the rand against major international currencies would have significant negative consequences for vehicle pricing, particularly of fully built up imported vehicles.

Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), said yesterday that locally assembled vehicles also relied to a great extent on component imports.

But he stressed that the depreciation of the currency had to be sustained over a period of time to have a material impact.

Vermeulen said some manufacturers tried to cushion the impact on the new vehicle market through periodic quarterly adjustments in vehicle prices, but some companies last year “took it on the nose and increased prices in one fell swoop”.

However, Vermeulen said the other dimension was that any depreciation in the value of the rand made South African produced vehicles and components more competitive in the global market.

Ken Manners, the president of the National Association of Automotive Component and Allied Manufacturers (Naacam), said the depreciation of the rand would result in an unforeseen windfall for vehicle assembler exporters, but this benefit would be offset by the additional cost of imported components.

Manners said imports of automotive components and subcomponents for locally assembled vehicles had increased in the past 12 months, because some of the sub assemblies on new models had greater imported content.

He said Naacam as an organisation was chasing greater local content and to that extent the devaluation of the rand was probably a good thing in that it would further drive local assemblers to seek greater levels of localisation to protect themselves from the great variations in the value of the rand.

Manners said the outcome should be positive in the long term for local component manufacturers and suppliers.

But Manners said Naacam was cautious about the net effect on the economy, because South Africa was still a heavily import dependent economy, such as for oil and vehicles, and the volatility of the rand was a problem.

“The volatility of the currency is not useful to any manufacturer and creates difficulties for the manager of any business, whether they are an importer, exporter or local supplier,” he said.

Derick De Vries, the chief executive of TransUnion Auto Information Solutions, said the depreciation of the rand had created a predicament for the motor industry, because it still needed to stimulate sales as new vehicle sales were declining.

De Vries said manufacturers and importers tended to hold back on large vehicle increases and instead let smaller increases filter through to the market. – Roy Cokayne