Rate hikes and economic woes suppress appetite for new vehicle purchases among South Africans

THE EXPECTED increase in the cost of borrowing in South Africa, with another interest rate hike looming, is going to exert further pressure on vehicle buyers in 2023.

This comes as the impact of economic stagnation, rising inflation and high interest rates has started to cripple South African consumers’ buying power as new vehicle sales fell for the second consecutive month in April.

The Automotive Business Council (Naamsa) said yesterday that the aggregate domestic new vehicle sales in April fell slightly, by 0.2% year-on-year, from 37 195 vehicles sold in April last year to 37 107, reflecting a decline of 88 vehicle units.

Domestic new vehicle sales fell 0.6% year-on-year in March – from 50 465 to 50 157 – reflecting a decline of 308 units, throttled by the effects of interest hikes, the Human Rights Day holiday, and the national shutdown.

Naamsa noted yesterday that the constraints as a result of subdued economic conditions were ongoing, with high interest rates impacting on a shrinking disposable income purse.

South Africa’s real economic growth is expected to decelerate sharply to 0.1% for 2023 due to load shedding, among other related supply shocks.

Naamsa said the economic turbulence and the record high headline inflation were likely to trigger a further SA Reserve Bank (SARB) Monetary Policy Committee interest rate hike this month.

“For this reason, Naamsa expects the domestic vehicle market to remain reserved for the greater part of 2023,” it said.

Last month, the SARB surprised the market when it hiked the rate by 50 basis points, increasing the repo rate to 7.75% and the prime lending rate to a 14-year high of 11.25% after headline inflation remained sticky at 7.1%.

Noting the importance of domestic investment to enhance economic growth and generate full and productive employment for the country, the automotive industry pledged substantial investments to President Cyril Ramaphosa’s fifth SA Investment Conference last month.

These investments will have specific focus on renewable energy projects, vehicle production, infrastructure and industrial zone developments.

Wesbank head of marketing Lebo Gaoaketse acknowledged that the potential for new vehicle sales remained throttled by general economic uncertainty, rising interest rates and inflationary pressures that are increasing the burden of household budgets.

Gaoaketse said the latent demand for vehicle replacements existed, but the willingness to commit limits ultimate sales. He also noted that the demand for vehicle finance was predominantly in the new vehicle market and not for pre-owned cars and bakkies.