Comments on NAAMSA New Vehicle Sales Report – September 2013 Sydney Soundy – Head of Standard Bank Vehicle Asset Finance
Sales Performance Summary – Total by Market Segment (NAAMSA flash includes Namibia, Lesotho, Swaziland & Botswana):
Sales Performance Summary – Exports:
Sales Performance Summary – AMH:
General Comments on September 2013 NAAMSA sales:
- The month of September 2013 experienced -3.27% less sales than August 2013.
- Year on Year comparison shows a decrease of -1.47% in September 2013 compared to September 2012. The average sales per day in September 2013 were less than September 2012 by 2,262 to 2,296.
- Exports showed a decrease of 69% compared to last month (August 2013) and a decrease of 75% compared to September of last year.
- The drop in sales is largely attributed to the labour strike action in the motor industry, and affected the exports sales numbers more given that sales in the local market is largely made up of imported vehcicles.
- The average number of sales for September since 2010 has been 50,425 (excl September 2013) and on average September has ranked as the 4th best month since 2007. September 2013 has in fact surpassed the average number of sales, (54,281 to 50,425), and has ranked the 5th best month this year, and 13th best out the last 81 months (January 2007 to September 2013).
General Macro and Industry Comments:
- The South African Reserve Bank has decided to leave the repo rate at 5%.
- Headline annual inflation rate (CPI) for all urban areas in August 2013 was 6.4%. This is 0.3% up Year on Year and 0.1% up from the previous months 6.3%. The level of inflationary pressure is still above the Reserve Banks inflationary target band (3% to 6%). Inflationary pressures will come from rising fuel and food costs which could be further exacerbated by above inflation wage settlements.
- The transport index annual measure increased from 8.2% to 8.5% between July and August 2013, mainly due to the 32c/litre increase in the price of petrol. With transport’s contribution to CPI being 16.43% it has the 2nd largest impact on the measure of inflation and thus largely contributed to CPI’s 0.1% increase month on month.
- RMB and the Bureau for Economic Research (BER) Business Confidence Index (BCI) quarter 3 score reflects the growing concern that the South Africa business community has around the country’s economic wellbeing. The Q3:2013 score came in at 42 pts. This is down from Q2:2013’s 48 pts. A score below 50 pts reflects a below than neutral feeling of economic wellbeing.
- The country’s Q2:2013 Gross Domestic Product numbers surprisingly came in at 3% q/q growth. This was on the back of a poor 0.9% q/q growth for Q1:2013.
- Standard Bank Research has revised its GDP forecast for 2013 to 2.1% down from 2.3%.
- The Monetary Policy Committee (MPC) revised down its annual GDP growth forecast for 2013 from 2.4% to 2.0% in their July 2013 meeting.
Fuel prices have risen by 27.2% in petrol (inland) and risen by 22.8% in diesel (inland) since Jan 2012 to September 2013. Further, the price of fuel in the country has gone up by 252.1% in petrol and up by 276.3% in diesel since Jan 2004.
The Rand has strengthened against major currencies over the past few weeks on the back of a four (4) year low against the Dollar.
The Unemployment Rate increased to 25.6% in Q2:2013 from 25.2% in Q1:2013. The highest Unemployment Rate thus far was recorded in Q2:2011, at 25.7%.
The Household Debt to Income levels are at high levels (75.8% in Q1:2013 that have eaten into the consumer purchasing power. This is one of the reasons why the market appetite for credit seems to be slowing with consumer spending reducing as the consumer comes to grips with the higher cost of living (food, fuel and general inflationary pressures).
Comments on Vehicle Sales Outlook:
Vehicle sales volumes may still be boosted by the following factors:
- The Prime Interest Rate remains at its lowest for over three decades, and continues to play a major part maintaining the South African consumer’s appetite for debt despite pressures put to bear by high Debt to Disposable income levels.
- Vehicle Price Inflation (VPI) for Q2:2013 has so far remained below CPI.
- However, the Rand has been under pressure against all major currencies, and this will have a negative knock-on effect on Vehicle Price Inflation (VPI).
- VPI on New cars has increased Quarter on Quarter to 3.0% compared to the 2.4% in Q1:2013.
- In contrast VPI for used car prices has decreased to -2.5% from -1.4% in Q1 of 2013.
- The industry is currently still experiencing the impact of the replacement cycle. This refers to the vehicle purchasing cycle. The cycle is approximately 5 years. 2007 was a massive year in the industry with 623,850 new vehicles financed. At the end of a 5 year term most maintenance/service plans have come to an end and consumers risk large cash outlays in the event of damage to their cars. Thus in light of that and with intentions of recouping some value from a depreciating asset consumers tend to purchase newer more cost effective vehicles. 2013 is the proverbial end of cycle and we are currently seeing the market grow but this will slow down in the second half of the year. Thus the cycle should lead to a peak in 2013
The following factors are expected to provide subduing effects on vehicle sales numbers:
- The expected low GDP growth.
- The labour disputes that have halted production in the Motor Industry at an estimated cost of approximately 2,000 units in August and with some manufacturer shutting down for approximately a month, September’s loss is likely to be far larger.
- The volatility in the exchange rate will increases food, energy and transport costs and will have a negative impact on consumers’ Disposable Income.
- Household Debt to Disposal Income remains high at 75.8% (Q1 of 2013 latest available update).
Fast Facts: Motorization Rate 2011
There are 165 vehicles per 1,000 inhabitants in the world as at 2011.
- South Africa’s average vehicle’s per 1,000 inhabitants (vpi) is above the world norm at 169.
- The United States has the highest vpi at 790 vehicles per 1000. (Source OICA –(Organisation Internationale des Constructeurs d’Automobiles, English- International Organization of Motor Vehicle Manufacturers )
South Africa v Rest of the World:
In 2012 there were 623,850 new vehicles sold in South Africa – matching the bumper number that was seen in 2007of 612,711 new vehicles sold. Currently new vehicle sales are 5.02% up YTD 2013 v YTD 2012 (Jan to September). This growth is better than that of GDP for 2013. The favorable interest rate environment and the lower than inflation related pricing of new vehicles has contributed to a buyers’ market but growth is expected to be more muted going forward with consumer indebtedness growing and financial institutions tightening credit lending.
- South Africa contributes only 2% of new car sales to the total of the BRICS countries’ total sales.
- South Africa new car sales YTD 2013 equates to 3% of China YTD 2013 sales. China is the largest new car sales market in the world with over 19 million new cars sold in 2012.
- Interestingly South Africa produced more vehicles than the much larger economic power of Australia, in 2012. RSA produced 539,424 vehicles to Australia’s 209,730. However Australia sold almost twice as many new cars in 2012 than that of RSA. (1,112,132 to 623,921).
Strike action impact on new vehicle sales and exports:
The financial impact that the recent strikes have had on the industry is estimated to be around R20 billion lost in production revenue. From a production point of view NAAMSA have reported that the strikes have cost the industry around 3,000 cars per day amounting to R600m a day, and in total 45,000 cars lost. It is estimated that domestic sales could have lost 2,000 units in August and with the automotive component manufacturers now striking September sales are expected to have a much larger loss in units sold.
However, the main concern of the recent industrial action is impact on foreign direct investment into the industry.
The percentage of exports to total vehicles sales have risen by 19.51% since 2007 (21.8% in 2007 to 41.31% YTD September 2013). With exports currently down by -1.07% YTD, 2013 was expected to be a record year. However due to the labour issues impacting the industry from a production side NAAMSA has mentioned that exports sales would most likely be lower than their original forecast of 336,000 for 2013.
Alternative vehicle type & small engine sizes:
The South African consumer is in a precarious position economically with key essentials rising in costs. Food prices have risen by 7.1% year on year (Stats SA) and fuel prices have risen by 27.7% in petrol (inland) and risen by 21.5% in diesel (inland) since Jan 2012 to September 2013 (Department of Energy). This has put pressure on the consumers’ Disposable Income. Household Debt to Disposable Income has risen quarter on quarter from 75.4% to 75.8% (Q4:12 to Q1:13). With such in context the consumer is looking for affordability when it comes to transport.
Small engine sized vehicles have been the vehicle of choice. Of all passenger cars, small engine size cars make up 65% of the total market (2013), which has grown from 64% in 2012. With the influx of small engine cars now having mid-range specs manufacturers are attracting the cost conscious consumer to this category. * Small Engine Size consists of engine capacities between 0l to 1.7l.
Recently the Minister of Trade and Industry Rob Davies announced that government has a plan to incentivise the manufacturing of electric vehicles. The government’s incentive aims to reimburse 35% of production costs over 3 years to manufacturers who produce 5,000 electric vehicles per annum. Electrical cars are generally smaller cars. The main challenge will be to ensure affordable pricing levels for the consumer.
An alternative to conventional and electric/hybrid powered vehicles may be the introduction of Natural Gas Vehicles (NGV). Around 15 million Natural Gas vehicles could be found worldwide at the end of 2011 (Worldwide NGV Statistics). NGV cars work similar to that of a petrol powered vehicle with more benefits like reduce carbon emission and less air pollution. NGV’s are popular in Europe and in North America especially in Buses. CNG is made by compressing natural gas which is mainly composed of methane.
Standard Bank VAF Affordability:
- For the period January to August 2013 Standard Bank experienced positive growth of 21.4% in applications compared to the same period in 2012.
- The Average Contract Term has been increasing month on month since Jan 2012 and currently averages 67 months; whereas the Average Term the account is retained is 43 months.
- The percentage of Applications with Deposits has been decreasing the % of Applications with Residuals Values to Total Applications has been increasing consistently over the past two years. This indicates that the consumer is attempting to ensure that the monthly repayment is kept at a minimum.
- The % of deposit has decreased from 37.5% to 28.4% and the % of RV has increased from 8.9% to 14.5% (Jan 2012 to Aug 2013).