Declining car sales ‘suggest recession’
NEW CAR sales last month dropped by 12.9 percent, the third consecutive month the segment has registered a double digit percentage decline, as the tough economic environment and financial pressure on households continued to knock new vehicle purchases.
Azar Jammine, the chief economist at Econometrix, said yesterday the latest new vehicle sales figures suggested the economy might officially be in recession although that would only be revealed in September.
A recession is two consecutive quarters of negative economic growth.
Nico Vermeulen, the director of the National Association of Automobile Manufacturers of SA, described new vehicle sales last month as “uninspiring”.
Total new vehicle sales dropped by 10.3 percent year on year to 42 907 units.
New cars sales dropped to 27 143 units from 31 161 unit sales in May last year while sales of new light commercial vehicles fell 5.3 percent to 13 446 unit.
Sales of medium commercial vehicles dropped by 13.1 percent year on year to 684 units and heavy truck and bus sales by 3 percent to 1 634 units.
However, new vehicle exports increased by 0.8 percent to 33 676 units from 33 414 units in May last year.
Jammine said the rate of decline in new vehicle sales was accelerating, suggesting that the ability of consumers to spend on big ticket items was “taking a whack” on the back of rising inflation and interest rates.
He said this type of product was bought using borrowed money and interest rates therefore played a role.
But Jammine said there was “a double whammy” because of the increase in the price of vehicles and interest rates combined while people were also getting worried about losing their jobs.
However, Jammine said commercial vehicle sales were “not too bad” and showed the economy was not collapsing completely. He believed new vehicle sales were bottoming out and car sales might level out at current rates or worsen more slowly.
Isaac Matshego, an economist at Nedbank, said the latest vehicle sales numbers were consistent with recent indicators that pointed towards subdued demand growth for big-ticket items on the back of low consumer and business confidence, rising inflation and tight lending criteria.
Matshego said the outlook for vehicle sales remained poor mainly due to weak economic growth, low confidence, still fragile household finances and higher borrowing costs.
Nicholas Nkosi, the head of Standard Bank vehicle and asset finance retail banking, said that given the car price increases and interest rate hikes, there was nothing in the short to medium term that would change the trajectory of car sales.
“People are financing their vehicles over a longer term, which speaks to them stretching their affordability. There is also a decline in the average value of finance deals, which speaks to the shift from new to used vehicles,” he said.
Absa managing executive for vehicle and asset finance Nelisiwe Baloyi said new vehicle sales volumes were expected to remain under pressure in the second half of the year as a result of a poorly performing economy.
Baloyi said the bank also anticipated rising vehicle price inflation as a result of a weakening exchange rate.
“Further interest rate hikes are expected towards year-end due to rising inflation, with these developments to constrain the affordability of and the demand for and growth in vehicle finance,” Baloyi said.