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Not the year of the car

Manufacturers, banks will likely see margins squeezed.

JOHANNESBURG – Automotive manufacturers, financiers and dealers will likely see their margins squeezed this year. 

Although automotive financier WesBank expects the overall new vehicle sales market to show slight growth, it anticipates that new passenger cars sales – the lion share of the market – will be flat compared to 2014. 

Simphiwe Nghona, executive head of WesBank’s motor division, says the depreciation of the rand continues to have an obvious and direct impact on new vehicle sales. However, he does not expect it to impact the passenger car market to such a degree that sales growth would turn negative.

But the knock-on effect of a weaker currency will lead to higher living costs and negatively impact on the consumer’s budget, he says. 

WesBank expects 439 210 new passenger cars to be sold this year – which translates to growth of 0% compared to 2014. 

Nghona says current sales volumes in the passenger car segment were achieved through exponential growth during the period after the recession. Whilst a flat market may not sound exciting, it is important to understand that vehicle sales in general are coming off a high base.

He says there are a number of factors that will support vehicle sales volumes. The first is the relatively low interest rate environment, which will continue to drive sales confidence for consumers and dealers.

Marketing incentives provided by manufacturers will also help to drive sales, he says. 

Moreover, consumers are spoilt for choice in terms of the number of derivatives available.

But there are also a couple of “pressure points”, like the depreciation of the rand. Potential interest rate hikes and industrial action could also hamper sales going forward, he says.

For the light commercial vehicle market, the outlook is slightly better. 

Nghona says new light commercial vehicle sales are expected to increase 3% to 178 921 vehicles this year.

He believes some consumers will be substituting passenger cars with light commercial vehicles. Some fleet replacement – predominantly by businesses – is also expected. 

New commercial vehicles sales are anticipated to grow by 1.1% to 31 900 vehicles. 

Nghona says in this sector growth will largely be driven by the replacement cycle of corporates – especially in the transportation sector.

Overall new vehicle sales are expected to expand by 0.87% to 650 031 units this year.

Used vehicles

In the search for better value for money, there has been an “increasing shift” to the pre-owned environment.

Nghona says during January WesBank received roughly 80 000 applications for used vehicle financing and about 40 000 applications for new vehicles.

He says there has been quite an aggressive increase in relative demand for used vehicle financing over the past three years.

There has also been quite a lot of activity in the entry-level market, which offers better value than before due to improvements in technology and fuel consumption, he says. 

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