On Thursday sales figures for new vehicles again surprised on the upside. Where most manufacturers expects around a 5% increase year-on-year, growth in sales of new vehicles were up almost 20%.
In an economy that is projected to only grow at 2.7% this year, growth in sales in new vehicles (an expensive, luxury item) at 19.5% does boggle the mind somewhat.
Some of the increase in sales can be attributed to the different configurations in the Easter holidays between the two years. Last year Easter fell in April, knocking off a few sales days, where this year it fell in March.
Notwithstanding that factor it was still, according to Dr. Azar Jammine of Econometrix, “very impressive data”.
At a Ford business presentation on Friday morning Jammine moved to dispel any fears that might be building around a possible collapse in the rand and imminent economic doom if investors withdraw their money from South Africa’s bonds and equities.
He used the Reserve Bank’s leading indicator to support his claim (see graph). He said the indicator, which has been moving sideways for the last couple of years, does not spell doom and gloom, but it also does not show the possibility of remarkable economic growth in the period to come. It basically shows that we will continue to “muddle about” at the rate we have been going at for the recent past.
Who then has the money to keep buying new cars?
Jammine said that people were seriously underestimating the impact of demographic changes taking place in the country. The StatsSA Income and Expenditure survey of 2010/11 shows that the income level of the Black African population as a group has now, for the first time, surpassed that of the white population group (see table below). This is at group level and not per capita, where the picture again changes dramatically.
In the past all the buying power was in the hands of the white population, but that was only about 4m people, Jammine said. While inequality is still persistent, the buying power is shifting over to a new group joining the ranks of people earning more than R5000 per month, with the real growth in income for the Black African population group growing at 34.5% in the last five years.
In 2002, Jammine showed, only 1.3% of expenditure of more than R5000 per month came from the Black African population. That has climbed to 8.1% in 2011 – an increase of 541%. This translates into about 460 000 households in 2002 up to 3.3m in 2011.
This means that 300 000 to 400 000 households are added to this category (of spending more than R5000 per month) each year, Jammine said. That is where the boost for discretionary spending on items like vehicles is coming from.
Although this is still a minute percentage of the population, it is where the spending power lies. Jammine explained that 85% of all the buying power in the country resides with people who earn more than R5000 per month. The millions of people, who earn less, do not have such a major impact on spending. This again illustrates the inequalities in the income levels of the majority of people in the country, leading to a new dual economy where some are experiencing hardship and struggling economically, while others can finally afford their first vehicle.