South African motorists — and would-be motorists — are aggrieved. Car prices continue to outpace inflation, despite the international purchasing power of the rand improving last year.
Soberingly, our car prices are not out of kilter with what is demanded in at least one other country, Australia, on a straight exchange rate comparison. What is out of kilter is the wealth of even moderately well-off South Africans compared to car prices.
South Africa increasingly competes in a global market, exporting fully built-up vehicles and importing them to compete with locally assembled cars. Like South Africa, Australia moved from a heavily protected motor industry providing cars exclusively for the local market to one more integrated into world car markets.
The price of a basic new Toyota Corolla in Sydney starts at just less than Aus$20 000. At prevailing exchange rates this is about R105 000. The South African list price of a basic Toyota Corolla 140i, with power steering and central locking as standard, is R109 000. This is R4 000 more expensive — less than 4%.
Move up to a Toyota with a 1.6 engine, air-conditioning and ABS brakes, however, and you approach the R150 000 level.
Also, the South African Corolla is not exactly comparable with its Australian counterpart. Extra items such as air-conditioning and central locking could explain some differences. Yet the Australian Corolla has a bigger engine, which commands a premium here.
More of a sticking-point for South African motorists is the rise in car prices. Car magazine has calculated the increase of a locally assembled BMW 318i between January 2001 and April 2003 as 41%. For a cheap locally assembled Tazz, the increase is 27%.
Comparisons over a longer period are complicated by the introduction of new models with improved performance and new safety features. But where they can be made, car price increases are steep.
The price of the most basic Toyota Tazz rose by about 425%, excluding VAT, between 1985 (when it was launched as the Conquest) and now. Between January 1985 and April this year, however, headline inflation in metropolitan areas was 537%.
Yet consumer outrage at what are seen as unjustifiable increases is reflected in new car sales. Figures from the National Association of Automobile Manufacturers of South Africa (Naamsa) show that sales for the last quarter of last year fell by 6% compared to the last quarter of 2001, and by almost 10% compared to the previous quarter.
The rout has continued this year. New vehicle sales for May, at 27 056 units, fell by 2 413 units (8,1%), compared to the corresponding month last year. New car sales during May, at 17 381 units, plunged by 1 694 units (8,9%), compared to May 2002. According to Naamsa, on a daily average new car sales rate, May sales were at levels last recorded three years ago.
The industry has reacted not by dropping prices, but by offering reduced interest rates or longer servicing periods and other sweeteners.
Another approach has been to lobby government to allow motorists to be able to lease cars, with the asset staying in the hands of the dealer. The approach emphasises ”affordability”, by bringing down the monthly repayment rather than the price.
This does little to improve the motorist’s overall financial position. The hard-pressed consumer can at least look forward to a few years of low-cost motoring with a paid-off car, or an asset to part-trade for a new vehicle.
Such ”affordability” solutions are only available to the relatively well-off. Already the percentage of new vehicles produced for the upper segment of the market far outweighs that of cheaper cars.
BMW sold 1 311 upmarket cars (including 112 Mini Coopers) in the first quarter of this year, compared to 1 142 sales of the cheap and cheerful Tazz.
South Africa’s wealth has stagnated over the decades. Gross national income (GNI) per capita is not much different, at about the R9 000 level, from two decades ago, and has dropped in dollar terms. Australia’s GNI is stable in dollar terms and seven times as large.
The government’s policy for the motor industry has not delivered much in the way of cheaper vehicles for the populace, though it has arguably preserved jobs and saved valuable foreign exchange.
A possible answer would be to lift the ban on imported used cars. Japan supplies many such cars to other African countries at bargain prices. The government could also remove some of the older vehicles from our own roads by beefing up roadworthy rules and properly enforcing them.
McCarthy Ltd CEO Brand Pretorius says the New Zealand experience of opening its market to second-hand cars was disastrous for its new car industry. Because of stringent roadworthy tests, Japanese motorists tend to change their cars every three years — so Japan can offer used cars for export at ridiculously low prices.
South Africa cannot afford to lose the motor industry, because it would forfeit valuable skills, a manufacturing base, the multiplier jobs of component industries, an important earner of foreign exchange and a magnet for foreign direct investment. The BusinessMap Foundation database shows the automobile industry attracted at least R15-billion in foreign direct investment between 1994 and 2002.
Yet the affordability problem remains. Pretorius notes that it takes the average household in the United States 19 weeks to buy and finance an average-priced car.
Here, applying the living standards measure (LSM) advertisers use to segment the populace, the average household of the top-earning LSM 10 would take 70 weeks to buy and finance an average-priced car. For the average household, a car is simply out of reach.
From time to time suggestions are made of a new ”People’s Car”, a basic, no-frills vehicle completely locally made, or imported from another developing country like India, for the mass market.
It has even been suggested, much to the motor industry’s amusement, that the cardboard-body, terribly polluting and risibly underpowered Trabant of communist-era Eastern Europe be resurrected for the South African market. Such ideas ignore consumer preference, which has been stubbornly willing to pay for more expensive used vehicles before new basic transporters.
”I only want something that gets me from A to B,” is one of the three most oft-told lies, along with, ”Your cheque’s in the post” and a few others that cannot be detailed here.
Reg Rumney is executive director of the BusinessMap Foundation