South Africa’s new vehicle market has made an astonishingly rapid recovery from the negative impact of the Covid-19 pandemic.
Sales in the first six months of 2022 are only 1.6%, or 4 182 units, lower than the sales registered in the corresponding pre-Covid period in 2019. However, economists and analysts attribute this strong “bounce back” largely to the pent-up demand that developed during the Covid-19 lockdowns rather than an indication of a better-performing economy.
A total of 253 442 new vehicle sales were registered in the first half of 2022, compared with 257 624 unit sales in the corresponding period in 2019.
Absa Vehicle & Asset Finance head strategy and business analytics Henry Botha said new vehicle sales in the first half of 2022 are “impressive and surprising”.
Botha said the industry has had to cope with many headwinds in this period, including higher inflation and the floods in KwaZulu-Natal, which hit Toyota’s sales.
“When you wipe out that many sales by Toyota, the market should not be on the same level as 2019,” he said.
Production of cars and light commercial vehicles has been suspended at Toyota South Africa Motors’ (TSAM) manufacturing plant in Prospecton near Durban since 11 April 2022 due to significant flood damage.
TSAM has not yet indicated when production will resume at the plant, although assembly at the Hino truck plant resumed on 23 May following a 40-day enforced shutdown, also because of flood damage.
New vehicle sales have also been dented by stock availability issues linked to the shortage of semiconductors.
Botha said new vehicle sales in percentage terms could easily have been double digits higher than in 2019 “if all things played out well”.
He said the market has recovered sooner than expected, adding that Absa Vehicle & Asset Finance and automotive business council Naamsa were forecasting that new vehicle sales would only get back to pre-Covid-19 levels in 2023.
He also attributed this recovery to South Africa’s ability to procure vehicles, with Suzuki and Haval both significantly increasing their stock levels in the country to replace models of European vehicle brands that were unavailable.
Botha said many of these models are more affordable and in the price range between R200 000 and R400 000.
“That is where the consumer still has affordability. But as soon as you go above R700 000, affordability is really low in South Africa,” he said.
Similarly, Econometrix chief economist Azar Jammine said the new vehicle market has been remarkably strong in the first half of this year, especially the passenger vehicle sales.
He described the performance of the passenger vehicle market as “astonishing” in the first half of this year and admitted he was surprised by the strength of car sales.
However, Jammine believes that in line with the buy-down trend in new vehicle sales, the value of car sales has not grown as rapidly as the growth in car sales volumes.
Low interest rates fueling demand
“But there is no doubt in my mind that the biggest driving force for the surprising way new vehicle sales have held up is that interest rates are so much lower than they were pre-Covid-19… That is changing and that is why I think you are going to see growth slowing down substantially,” he said.
Jammine added that replacement demand was also an important factor in stimulating new vehicle sales in the first half of the year. He said the performance of the new vehicle market is indicative that the economy is holding up reasonably and is not collapsing.
“But let’s not get excited about it. In light of the load shedding, the increases in interest rates and the global economic environment, with inflation being driven up sharply and affecting affordability, there is bound to be a slowdown in the growth of sales in the second half of the year,” Jammine said.
Martyn Davies, the Africa Automotive Industry Leader at Deloitte, admitted he was also surprised by how robust new sales were in the first half of this year.
“The story of the last year has been the bounce back and pent up latent demand, which was certainly because consumers held back in the Covid-19 period. The arguably [relative] rapid bounce back to equivalent [pre-Covid-19] levels is a story about accumulated demand. I think that is very, very positive news,” he said.
However, Davies said the global and South African economies have now changed significantly.
“The headwinds are certainly in play and to sustain that growth going forward is a real challenge,” he said.
Davies believes the growth trajectory in new vehicle sales in the second half of 2022 will plateau, or perhaps even decline going forward.
He added that price inflation and the rising cost of capital to purchase new cars in particular will place the middle class under increasing pressure.
“Current sales levels are not sustainable and I see a tailing off in consumer demand,” he said.
Jammine also does not expect the new vehicle market to be as strong in the second half of the year.
He said vehicle sales are an exaggerated barometer of the rate of change in economic growth, which means that even if the economy grows but grows at a slower pace, that will have a negative impact on vehicle sales.
Botha is more positive about new vehicle sales in the second half of 2022 although he admits there are many headwinds and the third quarter will be “very telling for interest rates”.
He said economists are forecasting a 50-basis point increase in interest rates in both July and September, with load shedding “the other mood dampener”.
However, Botha said October and November are typically very strong sales months, which is also when Toyota should be back to producing locally and Ford will be fully up and running with the new Ranger and Everest – two big volume sellers.
Botha estimates that 250 000 consumers postponed the replacement of their vehicles because of Covid-19 and believes 250 000 more vehicles should have been sold over the past two years than pre-Covid-19.
He said the tourism industry is also definitely recovering, which will increase sales to the vehicle rental industry.
Listen: Mark Dommisse, chair of the National Automobile Dealers Association, on new vehicle sales and buying trends, or read the transcript (June 2022)