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Author: Ingé Lamprecht|

28 November 2013 23:26

Will you buy a car in 2014?

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Muted new vehicle sales growth expected; dealer confidence drops.

JOHANNESBURG – Subdued economic growth, a potential hike in interest rates and a difficult consumer environment could suppress new vehicle sales in 2014.

Industry commentators believe that new vehicle sales will grow between 0% and 3% next year, in line with economic growth forecasts but a far cry from the sales party experienced between 2010 and 2013 amidst an active replacement cycle. However, at this stage the expectation is not that growth will turn negative.

Confidence in sales activity for new vehicles amongst local automotive dealers surveyed by WesBank declined during the fourth quarter and reached 5.58 out of 10. This is on par with a level last experienced three years ago, when the industry also emerged with bruises from a prolonged strike action.

The graph below shows the change in WesBank’s vehicle sales confidence indicator (WVsCI) since its inception in 2007. The indicator also illustrates how the proportion of dealers describing the new vehicle sales market as active or very active has contracted.

Click image to enlarge

Source: WesBank

According to Cyril Zhungu, executive head of WesBank’s motor division, the drop in confidence was largely expected.

The key challenges cited by dealers include supply disruptions experienced during the industrial action that lasted around seven weeks, a moderation in economic growth and a slowdown in consumer demand. This has been on the back of new vehicle price increases due to rand weakness, an escalation in the general cost of living and a rise in mobility costs. The increase in the fuel price has particularly dealt consumers a severe blow.

Next year

Zhungu says dealers are somewhat more optimistic about the sales outlook over the next three and six-month period. He says new model introductions in 2014 as well as incentives from manufacturers could lend some support to new vehicle sales.

“This is what we have noticed over the past nine months where manufacturers have actively been providing marketing incentives to ensure that consumers can purchase vehicles.”

He says WesBank does not expect new vehicle sales growth to exceed the level of economic growth, which is projected to be around 2.5%, next year.

There are some indications that the Reserve Bank could review interest rates, although balancing growth and inflation concerns will be difficult.

As long as interest rates remain low or are adjusted slightly upwards most customers will still be able to purchase cars, he says.

Mike von Höne from RGT Smart, expects new vehicle sales to grow somewhere between 0% and 3% in 2014. He says credit is increasingly difficult to access and consumers’ debt stress levels are growing.

The replacement cycle, which saw numerous consumers postpone purchases during the recession and only return to the market from 2010 onwards, seems to have run its course.

Although he does not anticipate an interest rate hike before the end of next year, he expects consumers to start thinking about the possibility and to approach the decision to buy with more caution.

The used car market has however started to improve amidst supply disruptions and new vehicle price increases. WesBank currently finances 1.3 used vehicles for every new vehicle financed, up slightly from 1.1 in the prior quarter.

The rand

Zhungu expects that manufacturers will continue to adjust their pricing in line with the cost of importing vehicles. The shift towards entry-level vehicles is also expected to continue because of affordability constraints.

Von Höne says despite a weaker currency, dealers and manufacturers will want to sell vehicles and will be constrained in what they will be able to pass on to consumers. If the rand remains stable at current levels, he expects that new vehicle price inflation will be muted

However, if the rand “falls out of bed”, manufacturers won’t have a choice but will have to pass on price increases. 

Topics: WesBank’s vehicle sales confidence indicator (WVsCI), Cyril Zhungu, RGT Smart, replacement cycle, interest rates, rand, price inflation, Mike von Höne
Who's Who
JOURNO PROFILE

NAME:  Ingé Lamprecht
BIO: Ingé Lamprecht has been a financial journalist for a number of years, after working in finance for a short while. She specialises in writing about investments, tax and the automotive industry. She...
EMAIL:  inge@moneyweb.co.za

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