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South Africa’s sharp decline in domestic new passenger vehicle sales shows that middle income households are battening down the hatches as they feel the ripple effect of higher interest rates and prices.
This is reflected in the latest Automotive Business Council (Naamsa) new vehicle sales data for August 2023.
Coupled with a retail sales dip in recent months, the numbers reflect that the salaries of middle income consumers are simply not enough to sustain household spending.
According to economists, a big part of the current economic struggles being experienced by citizens — spiralling food, vehicle and durable goods prices — is linked to years of state capture and corruption, which has led to failing infrastructure.
Transnet’s broken freight rail infrastructure has led to more than 80% of cargo being moved at a higher cost by road.
Naamsa recorded aggregate domestic new vehicle sales in August 2023 at 45 679 units, a 3.1% decline of 1 476 units to 45 679 from the 47 155 vehicles sold in August last year.
The new passenger car market sold 28 951 units, a dip of 2 064 compared with the 31 015 vehicles sold in August 2022. The car rental industry accounted for 16.2% of passenger vehicle sales.
Sales of new light commercial vehicles, bakkies and minibuses rose by 2.7% to 13 652 units, while heavy truck sales rose by 10.4% to 2374 units, a trend that also tells the story about the continued shift of freight from rail to road transport as Transnet struggles to fix its rail services.
This sharp decline in new vehicle sales stands in stark contrast to the 33.5% rise in export sales — up to 41 462 units compared with the 31 057 sold in August 2022 — feeding a global economy that is recovering more rapidly from the Covid-19 pandemic than the domestic economy.
Naamsa said the latest vehicle sales data reflected the difficult local economic climate.
“The weak new vehicle sales performance underlines the ongoing stressed business and consumer environment in the country given that negative economic considerations still greatly outweigh positive ones.
“The weak performance of the passenger car market reflected the impact of rising costs of living and lower disposable income on consumer sentiment and the ability to be active in the new vehicle market. Affordability along with delayed replacement cycles appear to be driving new vehicle sales.”
Naamsa said there had been some interim relief in the form of significantly less daytime load-shedding since June this year, interest rates being put on hold in July and, for the first time since November 2021, inflation now within the three to six percent target band.
“However, energy and logistical constraints remain binding on the domestic economic growth outlook, limiting economic activity and increasing costs,” it cautioned.
According to PwC’s Africa Economic Outlook report for August 2023, salaries increased on average by 4% in 2022 compared with an average inflation rate of 6.9%. This translated into a 2.9% decline in real (inflation-adjusted) income and decline in household buying power.
PwC senior economist Christie Viljoen said it is not only consumers who are battling.
“In the current economic climate, South African companies are struggling to pay higher remuneration to their employees. As such, consumer buying power will again decline this year, albeit by a smaller margin compared to 2022,” he said.
“PwC estimates that the real value of salaries and wages will decline by 0.8% this year following a decline of 2.9% in 2022. This is severely pressuring household finances, leaving consumers to prioritise essentials and their day-to-day living costs over durable goods that can likely wait until next year to be replaced.”
Viljoen said the decline in vehicle sales was indicative of the pressure on household budgets caused by inflation and high interest rates.
“Aside from pressure on household income, interest rates are currently at their highest in 14 years. This has increased the cost of existing debt — for example, mortgages, and also makes it more expensive to finance a vehicle. Vehicle prices have also increased notably,” he said.
According to Statistics South Africa, the cost of purchasing a new vehicle increased by 8.1% year-on-year in July. This was significantly above the headline inflation rate of 4.7% year-on-year.
Viljoen said household incomes need to keep pace with, or ideally exceed inflation for domestic vehicle sales to recover.
“For this to happen, South Africa will need to see a more moderate inflation rate — administered prices [which includes the price of electricity, education, water and property rates] are the key challenge — accelerated employment creation alongside faster economic growth and lower interest rates.
“South Africa is definitely lagging behind the rest of the world in economic growth terms. The South African economy is expected to grow by only 0.3% this year, weighed down by numerous challenges — most impactful being issues with electricity supply and reliable logistics. In contrast, the global economy is expected to grow by 2.5% to 3%.”
Viljoen also noted that many emerging markets were growing at more than 4% this year.
Econometrix chief economist Azar Jammine said the effect of higher interest rates has been slow to filter through to new vehicle sales, but alongside a sharp decline in retail sales, the latest data shows how middle income consumers (R10 000 to R40 000) were battling.
“It is something we have been expecting all year. There has been far stronger performance by commercial and heavy vehicle sales, which tells you further there is logistics disruption in the transport sector — Transnet’s failure to transport freight by rail — so there has been an increase in road transport, which has boosted heavy vehicle sales.”
Jammine said sales were buoyed earlier in the year because consumers had access to credit, but rising interest rates deterred new loans for vehicles.
“What pertains to new vehicle sales also applies to retail sales which have taken a knock, especially at general stores like Pick n Pay and Woolworths, where sales have slowed down.
“Initially there was a sharp rise in food prices due to the war in Ukraine and load-shedding and now we are seeing prices of vehicles and other imported goods rise because of the weakness of the rand. Every sector is feeling the pinch, but interestingly, the clothing and textile sector is the least affected.”
Jammine blamed the cause of consumers’ economic plight squarely on state capture and corruption.
“It is something most South Africans don’t fully appreciate and given the mayhem that happened in the economy you would have thought there would have been a total collapse of the economy, but it has not collapsed yet,” he said.
“Growth has weakened, but we still have had marginally positive growth and the reason for this is that the market share of what is spent in the economy is spent by a relatively small proportion of the population.
“Around 15% of households spend about 85% of the value of spending, while the other 85% of households spend 15%, and what this [lower vehicle sales] is telling us now is that middle income households that had previously held up are really starting to feel the pinch,” he says.
There was, however, “a little bit of light” amid the doom and gloom.
“There is the sense that the rising interest rate is over, inflation is a little subdued, we have a strong Reserve Bank and load-shedding is now less acute than we feared it would be a few months ago. But I don’t see us resolving this problem of state capture and corruption properly,” Jammine said.