After nearly a decade of remaining in the doldrums, the motor sector of the Johannesburg Stock Exchange has doubled in less than two years, with some listed companies still showing upward growth potential.
However, the ride to its present level of over 9 000 has been volatile. Before the 1994 election the index remained mostly below 2 000, but rose on positive political and economic sentiment in 1993 to an average of 3 000 points. Within a year, the index had moved to 3 500 and during the six months after the election it rose by a further 1 000 points. Another 500-point climb followed by early 1995 to reach an unprecedented level of 5 000 by 1997.
Analysts considered the sector overpriced, but the index soared to 6 600 in the first 10 months of 1997. Its progress was stymied only by the October crash, pulling the index back to 5 200. Since the crash, however, the sector has resumed its climb, jumping a further 75% to a May 1998 level of above 9 000 points.
What makes this progress even more startling is the fact that the motor industry has been hammered locally and internationally by significant oversupply in both motor parts and finished units. In addition, labour unrest has resulted in many companies worldwide undertaking financially crippling mechanisation programmes.
The 1998 International Monetary Fund’s World Economic Outlook states: “Today, the number of vehicles being manufactured worldwide is 35% more than the demand for such items.” This includes demand deriving from developing countries highlighting one crucial question for South Africa: what is driving this sector, when international supply exceeds demand, world prices are falling and little change is forecast for five years?
Two main factors are moving this sector. The first is restructuring, which has resulted in a number of companies not being solely focused on the production and sale of vehicles. The best example is Super Group Limited, which has moved from a retailer to a motor-related financial services company in two years. Its share price climbed from 210c in 1995 to above 1 900c in May this year.
Autoquip Group Limited is one company that is reflecting the worldwide motor slump. Its share went from 350c in 1997 to 475c this week. Given the significant climb in the sector, this share has been left behind. Its price/earnings ratio stands at 8,3 times, which is a significant discount to the sector’s ratio of 20 times. The share could play catch-up, depending on the second factor, namely market conditions in South Africa.
According to the latest Central Statistical Services data, the slump in the motor industry seems to have bottomed out, but still has some way to go before the sector will become profitable.
The statistics show that the total number of new motor cars and minibuses sold in 1997 increased by only 1,3% (4 098 vehicles) and the number of used commercial vehicles sold increased by 5,4% (2 525 vehicles) compared with 1996.
All the other kinds of vehicles sold showed a decrease between 1996 and 1997, with cash deposits for 1997 (R724,1- million) decreasing by 9,1% compared with 1996 (R796,6-million) and the amount on instalment-sale transactions for 1997 (R3,7-billion) decreasing by 12,1% compared with 1996 (R4,3-billion). Cash and credit sales increased by only 2,4% from R38,8-billion in 1996 to R39,7- billion in 1997.
There is a six-month lag between an interest-rate adjustment and its impact on motor vehicle sales.
The trend is for a further interest-rate decrease of one to two percentage points in 1998. This should impact favourably on vehicle sales this year.
ENDS