STANDARD BANK PEOPLE’S WHEELS AWARDS PANEL DISCUSSION
At a panel debate at the Standard Bank People’s Wheels Awards, local automotive experts were cautiously optimistic for the new vehicle sales outlook in 2013. The debate was entitled South Africa’s Auto Market: The Outlook for 2013.
Speakers on the panel included Jeff Nemeth, CEO of Ford Southern Africa; Derik Scorer, Chairman of the National Automobile Dealers Association (NADA); Sydney Sedi, Head of Planning for Renault South Africa and Keith Watson, Head of Sales at Standard Bank Vehicle and Asset Finance.
“It’s an interesting dynamic in the South African market,” said Nemeth. “You have an emerging market with 300 000 households a year being added to the people who can afford to buy cars – but at the same time you have a mature market because we’ve been in business here for 88 years.”
Scorer noted that the South African vehicle market was already starting to see a slow down as 2012 comes to a close. Following an above-expected year-on-year growth of 10% in sales, NADA predicts growth of just under 5% for 2013. “I think as an industry we will be extremely thankful for that and will prosper on the back of it,” Scorer said.
Nemeth explained: “There are two factors which drive industry growth – one is vehicle replacements and the other is new customers, assuming everything else is stable. Between those two we’re looking at a slight increase. Could it be down slightly? We wouldn’t be surprised, but we’re expecting it to be up.”
Sedi agreed with Nemeth, stating: “We will continue to have growth next year, albeit in a more subdued manner.”
“We as Standard Bank are a little bit more bullish to be honest, and as bankers we like to be precise so we think it’s going to be 6,05%,” joked Watson. More seriously, he noted that affordability remains a concern. “There are still high debt levels – for example home loans and personal loans – for consumers and particularly in the low end of the market, and these debt levels are keeping them from buying into the market more aggressively.”
Nemeth explained, however, that in real terms cars have never been more affordable. “One of the things which is interesting is that if you have a look at interest expense as a percentage of real disposable income, it’s at a 30-year low right now,” he said. “Also, if you look at the price of vehicles as a percentage of real disposable income, it’s also at a 30-year low.”
According to Watson, Standard Bank is looking to focus more closely on the youth market, enabling young buyers to purchase their first cars earlier than they do at present. When asked what vehicle manufacturers should do in order to assist in attracting this new youth demographic, Watson drew appreciative laughter by stating simply: “I think there’s a lot of room for the manufacturers to cut prices.”
Scorer said that anybody earning between R15 000 to R18 000 per month as gross earnings would be very fortunate if they were only 22 years old. “I would expect that they’d be able to afford a vehicle in the R150 000 price range and then afford the running costs and insurance as well,” he said.
One of the threats which 2013 holds is unsustainable debt levels. “We as an industry are seeing an increase in the number of people with impaired credit records after a number of years’ decline,” revealed Scorer. “I think the level of unsecured lending in South Africa – where people are borrowing to pay back previous loans – is out of control and needs to be curbed.”
Scorer feels that if OEMs are able to restrict price increases in spite of the sliding rand and other cost pressures in 2013, the South African automotive industry will have a good year. Although Sedi agreed that consumers have never had it better than at present in terms of affordability, he warned: “Definitely there will be price increases from next year.”
Nemeth estimates that 69% of vehicles sold in South Africa at present are imported. “Part of that is the new Automotive Production and Development Programme (APDP), where a lot of manufacturers are manufacturing single platforms and exporting the majority of their production,” he explained.
As an example, Nemeth referred to the new Ford Ranger, with Ford South Africa exporting 75% of the Rangers it builds at its Silverton assembly plant and allocating only 25% for the domestic market. “In prior years, we built many different models for the domestic market,” he said. “What that does, because of the programme structure, is it allows us to import vehicles and use the export duty credits to reduce the import cost of the vehicles.”
The APDP will therefore assist participating local manufacturers in freezing their prices. “Of course, the lower rand also makes our exports more attractive to our foreign customers, so it’s a balancing act,” said Nemeth. “We’re obviously going to do all we can with efficiency to make our vehicles more affordable, and it goes into the total cost of ownership – for example, we’re bringing in a one-litre Ecoboost engine in the new Ford Fiesta.”
It was noted that there are over 1 500 vehicle models from 60 brands available to South African motorists. In the light of the closure of a Chinese vehicle importer in 2012, Scorer had a grim prediction to make.
“The more traditional local manufacturers and exporters are going to be more aggressive in the market place. The population at the lower end of what’s on offer to the public is going to be driven by those local manufacturers and importers,” he said. “The competition that we currently see is going to find it increasingly difficult to retain profitable levels and keep a dealer network profitable.”
“Having said that, I think there is a future for a number of the smaller importers,” added Scorer. “The market is big enough and there’s a demand at the bottom end which is robust enough to drive profitability for those pure importers.”
Nemeth’s concern for 2013 revolved particularly around South African problems. “I think what you need to worry about is very small changes in demands for a particular brand can put dealers under water,” he said. “If dealers are not profitable then they won’t be looking after customers, you won’t have somebody to go for parts and service. The proliferation of brands sometimes makes them more difficult, and of course as one of the major brands we’d like to see less competition.”
There are also particular South African concerns for local manufacturers, with Nemeth adding: “My worry is that as time goes by it’s going to be harder for my counterparts here in South Africa to get their principals to agree to large investments in renewing their platforms in a market which is so unstable from an input, labour and policy level.”
Standard Bank predicts an increase of 50 basis points in the prime lending rate in 2013, but Watson expressed additional concerns regarding new capital liquidity legislation which potentially increases the cost of lending to finance houses, with those costs being passed on to consumers.
Despite the negative, panellists highlighted factors including longer periods on finance contracts, the addition of extras to vehicles which weren’t present before, improved safety specifications and the inclusion of maintenance and service plans as standard features on even entry-level vehicles as further drivers for growth.
“I think the cost of acquisition of a new car today is comparable to three of four years ago,” revealed Scorer. “In fact it could be cheaper if one takes certain factors into account: firstly we have negative real inflation on new car prices as OEMs and importers have done a magnificent job at keeping prices very stable, although that might change in the first quarter of next year with a slide in the value of the rand.”