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SA’s vehicle industry is still in for a rough ride

SA’s vehicle industry is still in for a rough ride.

Iemas Financial Services reflects on recent performance and takes a look at what the future holds.

The South African vehicle industry continues to see a downward trend in vehicle sales since last year. According the latest vehicle sales released by NAAMSA (National Association of Automobile Manufacturers of South Africa), August 2020 aggregate domestic sales declined by 26,3% (33 515 vehicles sold) compared to vehicle sales in August2019 (45 484 vehicles sold). Export sales in August 2020 declined by a staggering 46,9% (20 623 vehicles exported) compared to 43 960 August last year.

The impact of COVID-19 on the vehicle industry

Since COVID-19 was declared a national disaster on 15 March 2020 by President Cyril Ramaphosa, and the national lock-down that followed, the economic environment rapidly deteriorated with consumer spending and business confidence plunging to all-time lows:

  • Recent business closures and retrenchments will further contribute to S unemployment that has already climbed to 30,1% inquarter one, 2020 (2019: 27,6%); and
  • By quarter two of 2020, consumer confidence had dropped to -33, from -9 in the prior period. This is the lowest reading of consumer confidence since quarter two of 1985.

The unprecedented decision by the South African Reserve Bank (SARB) to reduce the repo rate five times by the end of July 2020 (with 300 basis points or by a staggering 46%) to stimulate the economy amid the economic turmoil was a further unexpected change with great impact on many sectors such as financial services. This stimulus will not only assist indebted consumers in the short-term, but will provide huge assistance to re-starting industry sales once the country resumes economic activity after the lockdown.

The outbreak of Covid-19 worsened consumer and business challenges/constraints, along with other global and macro-environmental challenges which are evident from the number of aggregate domestic vehicle sales and export comparisons below:

Number of units sold

Number of units sold

Number of units exported

Number of units exported

In 2019, vehicle sales and exports fluctuated on an expected seasonal month-to-month basis compared to 2020 where we experienced a massive drop in both vehicle sales and exports in April and a much-reduced demand in months thereafter. This can be directly linked to COVID-19 level 5 restrictions that saw a 3 week halt in vehicle production and closure of retail sales. Although there was an increase in vehicle sales and exports in May, it is only since lockdown level 3 restrictions came into effect in June that the industry experienced a some level of recovery.

What does the future hold?

Maria Feiteira, Managing Executive of Financing at Iemas Financial Services reflects,“Although the vehicle industry is still in recovery mode, consumers are gaining more confidence every month when it comes to buying assets. We have seen a steady movement in the last two months. Not surprisingly this includes trends in refinancing existing customer’s finance for lower monthly premiums as well as downscaling, where consumers are looking for more affordable vehicle options and willing to trade in their vehicles for second-hand vehicles or more affordable models”.

According to TransUnion’s COVID-19 Auto Playbook it is not all doom and gloom as the fleet industry is expected to gain 0,8% year-on year growth while the leasing industry is expected to grow by 4,5% year-on-year. In addition, the used car leasing sector can also expect to grow year-on-year by 29,6%.

“This data is very welcoming, and we have already seen movement in vehicle sales since the industry was able to resume full operation in June.Our industry’s challenge is to survive this recession sustainably as consumer spending is likely to remain low; this has a direct effect on our business. Now more than ever, we will have to find cost-effective and innovative ways to deliver value for our customers and help them with their financial wellness.

Digital channels offering digital showrooms and online financing applications are becoming crucial in this space. This contributes significantly in the sustainability of the vehicle industry. Social distancing and safety measures are also the order of the day at dealerships and financial institutions offering vehicle finance, to protect customers,” says Feiteira.

Sources:

  • press office
  • TransUnion COVID-19 Auto Playbook
  • The Bureau for Economic Research’s Consumer Confidence Index1