New vehicle sales robust, buyers opting for fixed rates

Car sales are often viewed as a good barometer for the economy as a whole—and if we look at the National Association of Automobile Manufacturers of South Africa’s (Naamsa) new vehicle sales for March, the economy’s about to pick up.

New vehicle sales for March improved by 22,8%—53 478 cars, as against last year’s 43 541 units. That’s an 8,8% uptick from February’s figures.

However, sales and marketing director at WesBank Chris de Kok believes that we’re now at the upper end of rosy predictions for sales, and as the months go by we’ll see some moderation in the figures.

“Remember that vehicle sales improved by almost 30% last year, which isn’t really sustainable,” says De Kok. “I expect to see 15% to 20% growth this year.”

Brian Riley, CEO of WesBank, believes vehicle sales will increase by 15,2% this year, with at least seven growth quarters ahead. He says the increase in sales forecast is to be expected after the market’s 2009 over-correction.

“There is little doubt that competition will increase both on price, product and the value-added services that come with the package, which certainly bodes well for the car-buyer, along with sufficient volume to keep dealers and manufacturers nicely in the black,” he says.

Vehicle-price inflation should remain low
Great vehicle affordability, low-priced inflation and a prime lending rate at its lowest level in 27 years accounted for growth last year, together with extended repayment periods on instalment sales. Is the picture that different this year?

Not really, says De Kok, who notes that although inflation could be a red flag it’s still within the Reserve Bank’s target range. Buyers are still fixing rates due to the low interest-rate environment and are clearly more confident about their purchasing power.

Sydney Soundy, managing executive of Absa Vehicle and Asset Finance, says affordability should remain constant and new vehicle price inflation should remain low on the back of a strong rand.

New passenger car sales have jumped up on the strength of this affordability, by 6 703 units (23,5%), compared with the same month last year. Low-entry vehicles are the main drivers of growth—Toyota is still leading with pack, with VW making a really strong showing in the passenger class in March.

Vehicle finance
“Although debt-to-income levels remain high, there are still over 10-million customers out there with good credit records, which is only 7,6% down on the peak in June 2007,” Riley says. “Inflation is low, with some upside potential, and in our industry there are lots of well-priced new models to entice the car-buyer.”

That said, buyers are still applying for vehicle finance contract periods longer than 60 months, to help them to afford pricier vehicles. Soundy advises consumers to focus on affordable vehicles that can be paid off in as short a period as possible. South Africans are still highly indebted and with the price of petrol set to increase by 54c on Wednesday, we should keep the cost of running a vehicle uppermost in our minds when we purchase.

Perhaps unsurprisingly, affordable new models are proving just as popular as used cars, because used-car prices have shot up on the back of strong demand and a lack of supply. The used-car market has also become more competitive.

However, Soundy still feels that the demand for good-quality used cars will remain high and De Kok notes that Absa is moving increasingly into the used-car market.

Absa financed 19% more units in the first three months of this year compared with the same period last year, at about 22% more in rand value. The average amount financed in the retail personal market (that’s not factoring deposits or trade-in amounts) was R176 000.

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