New car sales drop as economy misfires
Weaker rand, inflation, interest rates and debt put brake on spending
ECONOMIC factors such as the weak rand, high inflation, interest rates and high household debt have led to consumers holding on to their cars for longer and more consumers favouring the used-car market.
The National Association of Automobile Manufacturers of South Africa (Naamsa) released figures this week that showed that new car sales dropped last month by 6.1 percent to 34 936 units from 37 208 sold in January last year.
Wessel Steffens, the managing executive at Absa Vehicle and Asset Finance, said 474 550 passenger cars and light commercial vehicles were financed last year, compared to 491 569 financed in the previous year of which 174 449 were new vehicles (183 302 in 2014) and 300 101 used vehicles (308 267 in 2014).
Steffens said this was mainly driven by economic pressure on consumers and business which include low economic and employment growth, impacting household income.
Steffens said the finance house started seeing the number of used vehicles financed strengthening last year, and expect this trend to continue this year due to accelerated price increases of new vehicles.
“Consumers are expected to face increased financial strain in 2016 and 2017 on the back of rising inflation and interest rates.
“Credit-risk profiles are to stay under pressure and will remain a key factor in the accessibility of credit.
“Access to credit is an important factor in the vehicle market in view of a persistent lack of savings.”
He said consumers continue to struggle in obtaining and affording credit for higher-priced vehicles, with the demand for favourably priced entry-level vehicles and good-quality used vehicles remaining strong.
Ian Cruickshanks, the chief economist at the South African Institute of Race Relations, said the basic cost of living was becoming unaffordable and the reality was starting to catch up with the middle class.
Wesbank spokesman Rudolf Mahoney said when the economy starts to wobble, the demand started to shift from the new car market to the used market.
He added it was therefore evident that more people were holding on to their cars for longer, thereby delaying their buying decisions.