New vehicle sales in 2021 exceed expectations

But only likely to return to pre-Covid levels in 2023.
The shortage of semiconductors could see global vehicle production end the year with a loss of around seven million units. Image: Andrey Rudakov/Bloomberg

New vehicle sales have exceeded expectations this year but appear likely to decline next year in line with a poorer growth performance by South Africa’s economy and only reach pre-Covid-19 pandemic sales levels in 2023.

Neale Hill, president of automotive business council Naamsa and MD of Ford South Africa, says the new vehicle market has achieved a robust recovery year to date from the severely Covid-19-affected corresponding period in 2020.

Naamsa reported last week that year-to-date new vehicles sales to November have increased by 24.8% to 428 131 units from the 342 956 units sold in the same period in 2020.

Read:

However, total year-to-date sales are still 13.5% lower than the 494 996 new vehicles sold in 2019 before the Covid-19 pandemic.

Hill told a Naamsa CEO dinner last week that the automotive business council’s initial projection for 2021, in close correlation with the projected GDP growth rate of 3.3% for the year at the time, was for a year-on-year increase of just over 15% compared to 2020.

He said South Africa’s GDP growth rate forecast for 2021 has been revised upward a few times this year to around 5.2%.

In line with the improved economic climate, it appears the full-year new vehicle market will reflect an increase of around 20% year-on-year, said Hill.

“This is, however, still around 15% below the pre-Covid-19 level of 2019.”

“In line with the projected GDP growth rates of around 1.8% for 2022 and 2023, the new vehicle market is expected to grow by single digits in 2022 and 2023 to only reach the pre-Covid-19 level in 2023 again,” he added.

Azar Jammine, chief economist at Econometrix, said that at the beginning of 2021 they were projecting growth of between 15% and 20% in new vehicle sales but the final figure is likely to end at the upper end of this projection, if not over 20%.

He stressed that this forecast takes into account the fact that new vehicle sales comparisons in 2021 would be with a very low base in 2020.

December dip

Jammine pointed out that the overall market is up 24.8% year-on-year to November but there is likely to be a dip in the year-to-date growth when sales during December are included.

However, he said year-on-year new vehicle sales growth is still likely to be over 20%, which “is actually quite good and stronger than anticipated”.

Jammine said this ties in with the better-than-expected improvement in South Africa’s overall macroeconomic performance since the beginning of the year, with the International Monetary Fund (IMF) in April forecasting growth of 3.2% for the year but subsequently increasing that to 5.1%.

Read: The rate of increase in new vehicle prices is dropping

He said the main factor contributing to the better-than-expected GDP growth outcome is the fact that the world economy did a lot better than expected because of the unprecedented aggressive fiscal and monetary policy of advanced economies and the development of vaccines for Covid-19 ahead of expectations.

This meant many people in countries such as the US and UK were vaccinated at an early stage in the pandemic, which allowed economic activity to return to normal a lot faster than anticipated.

Jammine said this resulted in a surge in demand and in the price of commodities, a more than 45% growth in South Africa’s mineral exports, and a huge increase in South Africa’s terms of trade, which contributed to a far better economic outcome and far stronger government revenue than budgeted for in February.

Read: How miners have come to the rescue of the fiscus – and shareholders

In line with that, vehicle sales have come in quite a bit stronger than had been anticipated at the beginning of the year, he said.

Jammine said it is not a surprise that new vehicle sales are still lower than 2019 levels.

“Overall sales in 2020 was -29.1%. Mathematically, if you are going to surpass -29.1%, you would have needed 43% growth to get back to where you were in 2019.

“Clearly, even though we have got 24.8% growth year-to-date, it’s not enough to get us back to where we were in 2019,” he said.

Dampener

Jammine anticipates very low positive growth in new vehicle sales in 2022, and possibly even slightly negative growth.

Factors influencing this forecast include the tailing off of commodity prices on expectations of a slowdown in the global economy, which is being driven by the appearance of new Covid-19 variants and some countries having to reinstate lockdown restrictions, which will interfere with normal economic activity and growth.

He said the IMF is looking at 2.2% GDP growth for South Africa in 2022 while other organisations are forecasting growth of less than 2%.

Jammine said growth in vehicle sales follows the change in the rate of growth in the economy, which means there is likely to be “barely positive growth in vehicle sales next year”.

Hill said the global shortage of semiconductors could result in the loss of global vehicle production of around seven million units in 2021.

‘Adverse events’

He added that this year was also characterised by a number of adverse events with severe consequences for the automotive industry in South Africa.

These included the unrest and protests in July in KwaZulu-Natal and Gauteng; the negative impact of cyber and other network attacks on Transnet, which led to an escalation of some of motor industry logistics costs; power supply challenges; and the five-week National Union of Metalworkers of South Africa (Numsa) strike in the steel sector, which resulted in delays in the delivery of some mission-critical and locally produced components essential for the completion of motor industry manufacturing processes.

Read:

Cautious optimism

Hill said the IMF and various commentators are forecasting a continuation of robust growth in the global economy in 2022 and 2023.

Many automotive industry business leaders remain cautiously optimistic that domestic market conditions will continue to support new vehicle sales, vehicle imports and vehicle production over the next six months, and for the remainder of the industry’s key performance indicators to remain in gradual recovery mode, he said.

However, Hill said the strong rebound in South Africa’s projected economic growth rate of 5.1% in 2021 is expected to taper off substantially in 2022 to around 1.8% and continue “well into 2022” because of challenging structural economic problems in the country and Covid-19 global supply chain disruptions.

AUTHOR PROFILE

COMMENTS   0

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: