Absa commentary on the January, 2018 industry new vehicle sales statistics

Absa commentary on the January, 2018 industry new vehicle sales statistics

Vehicle Sales and Exports

  • January 2018 saw new vehicle sales declining by 8.9% year-on-year (y/y), but rising month-on-month (m/m) by 12.9% to 45 888 units, as reported by NAAMSA.
  • New passenger car sales dropped by 11.6% y/y while rising by 22.9% m/m to 32 642 units in January.
  • New commercial vehicle sales contracted by 1.7% y/y and 6% m/m in to 13 246 units in January. Light commercial vehicle (LCV) sales were down by 2.1% y/y and 3.5% m/m to 11 689 units in January..
  • The number of new vehicle sold per trading day came to 2 086 units in January, much in line with 2 032 units sold per trading day in December last year.
  • New vehicle exports increased 22% y/y to 14 212 units in January, but dropped by 18.2% from December. Passenger car exports jumped by 71.7% y/y in January, while contracting by 16.9% m/m. LCV exports declined by 14% y/y and 20.3% m/m to 5 616 units in January.

Vehicle Finance

  • Vehicles are mostly financed over the maximum period of 72 months, with the main driver being affordability. This has the impact of an increasing average contract period, causing a lengthening in the vehicle replacement cycle.
  • A total of 547 361 vehicles were financed in 2017, of which 385 797 were used vehicles and 161 564 were new vehicles. This resulted in a used-to-new ratio of 2.39 last year.

Industry Outlook

  • New vehicle sales are expected show low single-digit growth of in 2018 against the background of trends in and prospects for the economy, consumer and business sector finances and levels of confidence. Sales volumes are expected to be also driven by the demand for entry-level passenger cars, new model releases, manufacturer incentives and expected stable interest rates during the course of the year.
  • New vehicle exports will continue to be driven by global economic growth and subsequent vehicle demand, local manufacturers’ export programs and vehicle export competitiveness on the back of rand exchange rate movements.
  • New vehicle price inflation came to 2.3% y/y in December 2017, contributing to an annual average of 4.9% last year. The downward trend in new vehicle price inflation during last year was the result of the rand exchange rate being on a strengthening trend since 2016. The rand is, however, forecast to depreciate against the major international currencies during the course of the year, which will cause upward pressure on new vehicle price inflation, affecting new vehicle affordability.
  • Growth in vehicle finance will depend on trends in interest rates, household and business sector finances, levels of confidence and vehicle and vehicle finance affordability.

Economic, Consumer and Business Sector Outlook

  • Economic growth is forecast to increase from an estimated 0.9% in 2017 to 1.4% in 2018.
  • Consumer price inflation is forecast at just below 5% in 2018, with some of the main risks to the inflation outlook being the rand exchange rate and fuel price trends, which will also be impacted by the international oil price.
  • Interest rates are expected to stay at current levels in 2018, but will remain dependent on trends in key economic and financial market data.
  • Consumers and the business sector are set to continue to experience a fair amount of financial strain over the short to medium term in view of trends in and prospects for the economy and household and business sector finances.
    Factors Impacting the Vehicle Sector
  • Vehicle prices (exchange rate, taxes, input costs): New vehicle price inflation will mainly be reflected by rand exchange rate movements.
  • Household finances (household income, employment, the ratio of household debt to disposable income and consumer credit risk profiles), business sector finances (financial performance and credit risk profiles) and consumer and business confidence: Household and business sector finances remain finely balanced against the background of debt levels and credit risk profiles, which drive the access to credit. Consumer and business confidence remains low in view of economic developments and prospects.
  • Vehicle finance (interest rates, banks’ risk appetites, lending criteria and market strategies, financial sector legislation and regulation): The demand for and affordability and accessibility of vehicle finance, largely driven by interest rate movements and banks’ lending criteria, customer credit risk profiles and consumer and business confidence, are key to the performance of vehicle sales and growth in vehicle finance.
  • Transport costs (fuel prices and maintenance costs): Fuel prices and vehicle maintenance costs drive transport costs and consumer price inflation, impacting consumer and business spending power.
  • Economic performance and vehicle demand and supply (global and domestic economic growth, exports and workforce stability): Global and domestic economic growth drive vehicle exports and local sales volumes, which are supported by vehicle manufacturers’ export programs. Labour market trends and related developments impact vehicle production and export volumes, with vehicle export competitiveness driven by rand exchange rate movements.