New vehicle sales surpassed the 50,000-unit volume for the second consecutive month during August, making the significant volume more than a mere spike as has been the case in recent times. Volumes of more than 50,000 have previously been single month spikes, making August sales a strong indicator of substantial stability returning to the market.
According to data from naamsa | the Automotive Business Council, August new vehicle sales grew 18,7% to 51,880 units compared to August last year. This volume even exceeded July’s 51,489 sales and continued the market’s 11 consecutive months of growth and the most-recent six months of double-digit growth.
“The new vehicle market’s performance has enabled year-to-date sales to remain in double-digit growth territory, the market up 14,5% for the first eight months of the year,” said Lebo Gaoaketse, Head of Marketing and Communication at WesBank. “The market has been driven by demand for passenger cars and dominated by two leading brands that enjoyed a combined market-share of 38,2% during August.”
More favourable economic conditions are improving consumer and business sentiment, driven by lower interest rates, mixed savings in the fuel price, and lower inflation that is alleviating pressure on household budgets. “This is freeing up the pent-up demand that has been in the market as evidenced by application volumes,” says Gaoaketse. “Slowly, consumers and businesses are freeing up disposable budget that is enabling overdue replacement or allowing solutions to changing mobility needs in the lives of South Africans.”
But Gaoaketse warned that household budgets remained under strain and that market activity continues to be driven by affordability in a sweet spot of between R350,000 and R400,000 according to the bank’s average deal size. “This has favoured the model ranges offered by the two dominant brands in the market as well as new entrants offering different value propositions at attractive levels,” says Gaoaketse.
“It is also a factor of South African millennials driving the local market with young people under the age of 35 accounting for 45% of WesBank’s customer base,” says Gaoaketse. “This drives a certain level of earnings and contributes to the affordability dynamics of the market that is also extending towards the maximum contract term to lower monthly premiums.” WesBank’s average contract period for new cars was 72 months during July and 76 months for pre-owned vehicles.
Passenger cars accounted for 71,2% of the market during August and continued to drive sales performance, the segment up 22,5% to 36,914 units. Light Commercial Vehicles accounted for 23,8% of the market during the month, increasing 15,1% to 12,326 units.
“The market’s performance this year has been just reward for the resilience shown by the industry over the past few years to survive the economic storm,” said Gaoaketse. “But with affordability being the key driver of market activity, the industry needs to continue delivering attractive price points and banks fulfilling the demand for credit.”
Pocket Mazda
Domestic inflation: The highest inflation rate ever recorded in South Africa was in January 1986, at 20.7%. Some of you may remember those bad days where each wag of P.W. Botha’s finger put an extra percentile to the inflation rate. That year the average inflation rate was 18.7%. During the 2008 financial crisis, South Africa’s inflation rate was 11.5%. In July 2018, the latest official monthly inflation rate was 5.1%. With inflation, this low, production cost increases can be expected to remain low, despite the large hikes in the petrol price. This reduces the perceived risk of starting a business in South Africa. Compared to Venezuela (200 000% inflation rate) we are not doing too badly!