Vehicle Sales: Stormy 2016 bodes well for sunny 2017

CarWarehouse

Increased consumer confidence and a period of political stability, allied with a gradual strengthening of the rand, should see the vehicle retail market improve in 2017, but the news won't be good for everyone... Expect more OEMs to bite the dust and the rising cost of crude oil to impact on motorists' spending power... 

If there was ever a theme song for South Africa, not least its vehicle market, it would surely be Gloria Gaynor's disco-era standard: “I Will Survive.”

Consider that in 2016 we've seen charges against Finance Minister Gordhan Pravin dropped, a credit rating downgrade to junk status escaped (if only just), increased vehicle exports, and the first faint twitchings of economic recovery. But more about that a little later...

The naysayers, of course, have had a field day. The rand has had a bumpy ride and consumer inflation has hit close to 7%, although for a punch-drunk public it feels a lot higher. 

And in the motoring world, it was a bit of a bloodbath thanks to double-digit car price increases, a volatile rand and anaemic consumer confidence. Compared with 2015, passenger vehicle sales were down by 12.4%, the National Association of Automobile Manufacturers of South Africa reported. Total vehicle sales for the year, meanwhile, declined by 11.4%.

'Affordable wheels, now!'

But that's better – if only a little bit better – than the 12% decline predicted by WesBank, while used cars sales are up almost 10% over 2015 figures. Consumers want affordable wheels, and they want them now.

“Consumers continue to battle with affordability in the new market. This is most evident in the premium segments, where sales have fallen markedly,” says WesBank's Rudolf Mahoney. “The majority of these premium models are imported and have been heavily impacted by the poor performance of the rand. These customers are either downgrading and buying more affordable models from mainstream brands, or moving to the used market.”

Exactly! In 2016 we also saw one OEM leave our shores, namely Citroen. Despite fielding good product matched with good after-sales service, and generally good reviews from the motoring media, its sales were fractional. It won't stop with Citroen either.

Expect more OEMs to close shop

The South African motoring market is horribly overtraded. Despite being minnow-sized by global standards with a total of around 100 000 cars sold a year, some 50 vehicle manufacturers and importers have an official presence in South Africa. Most of them field a bewildering array of models.

To survive the local auto industry needs to be lean and mean, and as heartless as it might sound, to make the car market viable a several of those 50 brands need to go, and go they will. Common sense will prevail. It almost always does.

Signs of a recovery

Meanwhile, already the first tentative signs of a market recovery are noticeable. From around March 2017, I expect a combination of increased consumer confidence, and less political interference to mean vehicle sales growth of 5 to 8% – all helped by a rand that I anticipate hitting R12 to the dollar around the second quarter.

A lot of this sales growth will be in the budget segment. Consumers will still be reeling a little, and with OPEC and its oil-producing allies having essentially turned the taps to a trickle, fuel prices will increase. It might not seem like it, but at under $50 a barrel oil prices have been artificially low. A lot of us forget that prior to mid-2014, the black stuff was at over $100 a barrel.

As it starts to claw back to that level, we're going to pay more at the pumps, with an increase already scheduled for the end of December.

Plus as the government scrabbles to raise funds for everything from a bloated public service bill to a vast social welfare system, I wouldn't be in the least surprised if yet another Fuel Levy is added. As it is around 35% of the cost of every litre of fuel is allocated to different government levies. So frugal, fuel-sipping cars will become yet more popular in 2017.

A proud history of pulling off miracles

If any of this sounds overly optimistic or rosy, remember: South Africa has a long and proud history of pulling off miracles, from the largely peaceful 1994 elections – which now seem like a different lifetime – to the 2010 World Cup. The list is long.

And not only will this great and glorious country survive 2017, but it will thrive.

So, let me stick my neck out and go against the educated economists, who in my humble opinion are better weather forecasters, and predict a R12-to-the-Dollar exchange rate.

Hairdressers are more trusted at forecasting weather than lawyers, sangomas, economists, bankers, journalists, politicians and used car salesmen. Even my hairdresser reckons I am being too modest!  What do you think?

More reading:

SA Ratings Downgrade: What It Would Mean for the Motor Industry
3 Must-ask Questions for a Used-Car Salesman
The Motor Industry Ombudsman Of South Africa - In-Depth Q&A
Car Theft Insurance Claims: When Are You Negligent?
Vehicle Warranties: The Devil's in the Detail

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