Car sales off to ‘flying start’
Clint Eastwood, in the film Dirty Harry, demanded of a gangster: “You’ve got to ask yourself a question, ‘Do I feel lucky?’ Well, do ya, punk?”
It’s a question motor industry analysts might like to ask of themselves. Having, almost without exception, got their 2020 and 2021 new-vehicle market forecasts utterly wrong (with good reason), how confident will they be with predictions in 2022?
January’s sales figures, published this week, show that at 41,382, sales of new cars and commercial vehicles were 19.5% better than the 34,639 of January 2021.
Mark Dommisse, chair of the National Automobile Dealers Association (Nada), calls it a “flying start” to the year.
Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of SA (Naamsa), prefers “very positive”, while WesBank marketing head Lebogang Gaoaketse confines himself to “solid”.
Mabasa thinks the full-year market for 2022 will grow 8% but few others are prepared to get out their crystal balls yet.
Gaoaketse says: “Year-on-year comparisons remain difficult to interpret because of differing pandemic circumstances.”
His caution is understandable. Last year, the consensus was for 12%-15% recovery. Toyota SA CEO Andrew Kirby, with his 21% guess, was almost the only one to come close to the final figure of 22%.
Late last year, Naamsa was still predicting a 2021 market of 438,000. The eventual number was 464,122, compared with 380,266 a year earlier.
January’s sales continued the growth momentum enjoyed in the second half of 2021. Gaoaketse says they “raise the hopes of manufacturers and dealers for ongoing market improvement”.
But not too high. Greek philosopher Aristotle is credited with the saying, “One swallow does not a summer make.” The motor industry will need a succession of monthly swallows (the collective noun for the birds is a “gulp”) before the picture becomes clear and even that is no guarantee of accuracy. Just ask exporters.
In mid-2021, after several months of growth, new-vehicle exports were more than 60% ahead of 2020 and great things were expected.
By year-end, the improvement was far more modest after riots, Transnet cyberattacks, strikes and component shortages combined to slash production.
The last of these remains a threat. Semiconductor microchips, an important part of modern vehicles, remain in short supply. There have been shortages of other components, such as wiring harnesses, plastics and glass. A lack of shipping containers has further disrupted supply chains. Dommisse says some interruptions are likely for much of 2022.
The impact has been on both local manufacture and overseas plants that supply vehicles to SA. Given that some popular vehicles are in short supply as a consequence, Dommisse says it is “amazing” that January’s sales were so good.
So unexpected was last year’s recovery that the sales total of 464,122 even exceeded Naamsa’s forecast of 463,000 for 2022. Another 8% this year would take it to 501,252. That is in line with predictions that the market will return to pre-Covid levels in 2023. In 2019, the industry sold 536,612 new vehicles. That was about 17% down on the 2014 market peak of 649,217.
The question now is when the market can recover, not just to pre-Covid but to 2014 levels and beyond. The success of long-term motor industry policy depends on local sales and vehicle production more than doubling in the next few years.
A strong 2022 would be a good start. Nada vice-chair Alex Boavida says January’s sales “signal improving consumer and business confidence”.
There’s no doubt that demand for vehicles is strong. Much of this demand, however, is being channelled into the used market, where options are more affordable. This is particularly the case in the car market though Gaoaketse observes that shortage of good used stock is accelerating price inflation to the point that more people will consider new vehicles.
Clearly, overall new-vehicle market growth will be driven by cars. In January, they accounted for 72.58% of the total market. Light commercials (primarily bakkies, vans and minibus taxis) took another 23.27%, leaving the crumbs to trucks and buses.
New-car sales rose 26.6% from a year earlier. Of the 30,037 total, 15.3% were bought by car-rental companies. They are traditionally a major consumer of new cars but their purchases have shrunk dramatically in the past two years as Covid has slashed tourism and business travel.
The sudden widespread ban on travel to SA at the end of November last year was a further blow but if foreign governments can refrain from similar knee-jerk reactions in future, the rental sector will once again provide a solid base for car sales.
The truck market is particularly hard to read. In January, sales of heavy trucks shot ahead by 51.6%, while extra-heavies grew 6.5%. Medium trucks slipped 4.3%. UD Trucks MD Filip van den Heede thinks overall truck sales growth could be anywhere in the 5%-8% range this year.
Transport operators have been holding on to vehicles longer than usual and it’s not clear yet when pent-up demand will turn into sales.
Like all vehicle buyers, companies are nervous about economic and market conditions. Though expected, two recent interestrate hikes will only make things worse for consumers already beset by record fuel prices, rising food and energy costs and a depreciating rand.
Mabasa says: “Consumer and business sentiment will remain under pressure over the short to medium term.”
According to Gaoaketse: “Rising costs of living amid more-slowly recovering earnings are expected to continue placing pressure on household incomes and the wherewithal for consumers to afford new vehicles.”
Mabasa sums up the caution when he says: “The new-vehicle market trend over the next three years is expected to be upward, in close correlation with National Treasury’s projected domestic economic growth outlook averaging 1.7% for 2022, 2023 and 2024.”
Year-on-year comparisons remain difficult to interpret because of differing pandemic circumstances Lebogang Gaoaketse WesBank marketing head