The new vehicle market has taken quite a battering due to numerous factors, but while the outlook for the rest of 2016 isn't great, it's not all doom and gloom. Activity in the used car market has started to pick up...
2016 is going to be remembered as the year the South African new vehicle market was at the receiving end of some major punishment. Thanks to market forces such as an unstable currency and an increase in the prime lending rate, new vehicle sales are dropping. It's simple economics: many people cannot afford to buy new vehicles and those who have recently purchased a car will feel the effect of the interest rate hike in the shape of costlier monthly payments.
The forecast for the rest of the year isn't good. Despite the fact that some manufacturers such as Volkswagen, Toyota, Ford and BMW have manufacturing plants in South Africa, the credits they receive for producing vehicles locally are not enough to lessen the impact of the Rand's weak exchange rate, let alone the duties levied on (pricier) imported products.
To add insult to injury, the global oil price has come down dramatically, but our currency decline is preventing this saving being passed onto consumers. Read: Fuel Prices at the Mercy of Sliding Rand
Financing house WesBank has picked up on a trend in January 2016. Out of all the financial assistance applications that came in, 70% were for used vehicles with the remaining 30% being for new cars. On a year-on-year basis, new vehicle finance applications have dropped by 6.4%.
“The decline in new vehicle sales comes as no surprise in the current economic climate, with consumer and business confidence at very low levels as a result of a number of macroeconomic factors,” said Simphiwe Nghona, CEO of Motor Division at WesBank. “The spike in rental sales is an anomaly, most likely due to rental companies choosing to re-fleet ahead of new car price increases. Despite this positive activity in the rental market, total industry sales still saw a decline.”