NEW VEHICLE SALES UNLIKELY TO CRASH
Slowdown due to rates, unsecured lending
DESPITE muted economic growth prospects, the new vehicle sales market is unlikely to collapse like it did during the economic downturn.
After reaching an historic high of around 714 000 new vehicle sales (total market) in 2006, the domestic market slumped by almost 45% during the next few years to reach sales of 395 000 units in 2009.
It has since recovered most of these losses and reached total sales of roughly 624 000 last year.
Speaking at the Retail Motor Industry ( RMI) Conference at Automechanika on Friday, Dr Azar Jammine, director and chief economist of Econometrix, said although new vehicle sales are slowing down, the market is un- likely to collapse.
Jammine said the slowdown can be attributed to a number of factors. Interest rates fell sharply a few years back, but for the last two years it has only fallen by 0.5 percentage points.
“So that boost to vehicle sales that we had two years ago is starting to fade because we haven’t had an additional cut in interest rates.”
However, the market is not going to collapse because interest rates are still low compared to historical levels, he said.
Secondly, much of the boost to the vehicle market in 2010 and 2011 came from this extraordinary explosion of unsecured lending made available to lower-middle income groups who were suddenly able to borrow money to buy vehicles, he said.
This extraordinary growth has started generating a lot of impairments for lenders and as a consequence, both because of their own concern about having too many bad debts on their books but also because of increased pressure from the likes of the Reserve Bank to reduce their lending, the people advancing these unsecured loans, have been slowing down doing so in recent times, Jammine noted.
Jammine said a comparison of Naamsa passenger vehicle sales growth and passenger vehicle sales growth of the Associated Motor Holdings (AMH) and Amalgamated Automobile Distributers (AAD) stables, which tend to be geared more towards the entry level segments of the market, and therefore were those segments that may have benefitted more from unsecured loans, show that AMH and AAD growth in new car sales has been underperforming Naamsa in recent times.
Unsecured lending is also going to slow down because of the imperative upon government to slow the growth of public sector remuneration, he added.
Another reason why the market is unlikely to collapse is the growth opportunities that Sub-Saharan-Africa is offering on the back of the potential buying power of growing numbers of black middle class consumers.
But, warned Jammine, in the case of another world-wide recession, the picture might look quite different. – inge@moneyweb.co.za