South Africa’s automotive industry is clinging to optimism amid modest signs of recovery, driven mainly by the recent reduction in interest rates.
In September, the South African Reserve Bank initiated a much-anticipated interest rates cutting cycle with a 0.25% reduction—an event expected to be the first in a succession of cuts over the next 18 months.
This decision has been eagerly awaited by both consumers and economists, as the automotive sector grapples with a continued slump in vehicle sales and exports.
The Automotive Business Council (Naamsa) reported yet another modest decline in total new vehicle sales for September, slipping by 4.1% to 44 081 units compared to the same period last year.
Nevertheless, a glimmer of hope shines through as passenger car sales saw a slight uptick, hinting at a possible market turnaround.
Mikel Mabasa, CEO of Naamsa, expressed cautious optimism as the year approaches its end, despite the enduring strain of high inflation.
“We stated that we anticipate a year of two halves, with a taxing first six months of the year and improved prospects for the second half. All the economic challenges of 2023 rolled over into 2024, including high interest rates, inflation, a weaker Rand, high fuel prices, port delays, and indebted consumers,” Mabasa noted.
“Our predictions for the first half played out as expected. Although we’ve seen some positive movements during the third quarter, both new vehicle sales and imports remain below 2023 levels by 6% and 3%, respectively.”
Year-to-date data underlines the industry’s struggles, with new vehicle sales dipping 5.8% to 401,169 units and exports plummeting by a staggering 19.7%, to 289,198 units. Contributing factors include decreased demand for outdated models and stringent environmental regulations in critical global markets.
Lebo Gaoaketse, head of marketing and communication at WesBank, pointed out that the September market performed similarly to early 2023 and late 2019 volumes, signifying a slow yet ongoing recovery.
“With the expectation of better trading conditions over the next 18 months, we can anticipate improved performance in the new vehicle market as consumers benefit from debt savings,” Gaoaketse said.
“While the immediate effects of rate cuts are small, the psychological stimulus to market sentiment is significant.”
Despite the lacklustre numbers, new vehicle sales in September ranked as the third-best month of the year, trailing July by just 148 units.
Notably, the commercial vehicle sector continued to face challenges, with light commercial vehicle sales dropping 17.1%, and heavy trucks and buses seeing an 18.1% decline. Still, slight gains were observed across other segments compared to August.
Encouragingly, the passenger car market exhibited positive growth, rising 2% to 30 218 units and surpassing the 250 000-unit milestone year-to-date.
Brandon Cohen, national chairperson of the National Automobile Dealers Association (NADA), asserted that the growth in passenger car sales is a hopeful indicator of consumer sentiment.
Cohen acknowledged the SARB’s first interest rate cut in four years and highlighted additional positive economic factors including a stronger exchange rate, lower inflation, heightened foreign investment, and a decline in load shedding.
However, he cautioned about ongoing challenges.
“Rising electricity prices are expected to further strain disposable income, but the industry remains cautiously optimistic for the fourth quarter, bolstered by new models, more affordable brands, and aggressive dealer incentives,” Cohen said.
“We are not out of the woods yet, but the data indicates positive trends in the domestic market. This momentum could lead to stronger sales in the medium to long term.”
BUSINESS REPORT
