Next Month May be Brutal for Car Sales

The relentless increases to interest rates, rising fuel prices, and a depreciating currency were some of the major headwinds facing the South African new vehicle market during May. The economic conditions facing consumers continue to place immense pressure on household budgets and more of their impacts are yet to be felt as their ripple effect impacts other areas of the value chain.

Despite these conditions, consumer behaviour doesn’t appear impacted by these economic indicators. “Although this May presented one more selling day year-on-year, market demand as measured by WesBank’s applications for finance increased substantially compared to the same time last year,” says Lebogang Gaoaketse, Head of Marketing and Communications at WesBank. “In fact, applications for new vehicle finance displayed double-digit growth and increased twice as much as for used vehicles.”

WesBank cautioned that the conversion of these applications into actual deals isn’t taken into account. “Whilst the level of demand seems contrary to the economic pressures on household budgets, it is reassuring that opportunity remains in the market and that economic activity – however difficult – continues to perform,” says Gaoaketse.

“Where the real changes in consumer behaviour are being felt, however, is in the level of affordability,” says Gaoaketse. “WesBank’s deal duration has increased year-on-year and the growth in the contract size is below inflation, meaning consumers are keeping their vehicles for longer and new vehicle sales are moving slowly towards more affordable vehicles.”

That level of demand appeared to reflect in the new vehicle sales for May. According to figures released by naamsa | the Automotive Business Council, May sales were up 10.1% year-on-year to 43,060 units. However, May sales last year were the second-worst performing month, which must be considered, and last month’s sales returned to levels experienced at the beginning of the year.

Passenger car sales were flat overall, up 0.1% to 27,401 units compared to May last year. Dealer sales in the segment performed better, up 5.5% at 24,579 cars being registered off the showroom floor.

Light Commercial Vehicle sales made a big jump of 38.5% to 11,493 units. This was also significantly more volume than the previous month and was reflected in the dealer channel volumes, up 33.3%.

Heading towards the middle of the year, the year-to-date volumes are more representative of the slow recovery in the market, up 3.0% to 218,869 units.

“While the levels of demand remain reassuring for the new vehicle market, the economic effects will continue to take their toll on consumer budgets and ultimately have a bigger impact on the market,” concluded Gaoaketse.