Accelerating vehicle prices to rein in local sales

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Anticipated higher-than-inflation new vehicle price increases caused by the depreciation of the rand and a still depressed economy are expected to dent domestic vehicle sales this year.

The National Association of Automobile Manufacturers of SA (Naamsa) is forecasting only minimal growth in sales, with overall sales due to rise by 0.2 percent to 652 000 units from 650 620 units last year.

This projection comprises a marginal decline in new car sales to 450 000 units from 450 440 units last year; growth of 0.45 percent in light commercial vehicle sales to 170 000 units from 169 234 units last year; a 3.5 percent increase in medium commercial vehicles to 12 000 units from 11 595 units; and a 3.4 percent rise in heavy commercial vehicle sales to 20 000 units from 19 351 units.

Azar Jammine, the chief economist at Econometrix, said yesterday that the forecast for domestic new passenger vehicle sales was realistic but that for commercial vehicles it was “unduly pessimistic given the momentum of sales that has been built up in these segments in recent months”.

Jammine said the impact of declining overall economic growth could be expected to cause passenger vehicle sales to decline this year, but this needed to be weighed up against the continuing boost to foreign tourism, and therefore the vehicle rental market, caused by the rand’s depreciation to its lowest level in purchasing power terms since the recession of 2008/09.

He said on balance Econometrix anticipated growth in domestic passenger vehicle sales of between zero and 2 percent this year.

But Jammine said Econometrix would not be surprised if the medium and heavy commercial vehicle segments experienced growth of 5 percent or even more this year.

“The momentum built up in sales of heavier commercial vehicles in recent months is fundamental and unlikely to be reversed immediately. In addition, we believe that the government’s infrastructural investment drive will ensure that there is ongoing replacement of heavier commercial vehicles.”

Nico Vermeulen, Naamsa’s executive director, said domestic new vehicle sales last year recorded year-on-year growth for the fourth consecutive year, although at 3.2 percent it was below Naamsa’s original expectations of about 7.3 percent.

Vermeulen attributed this primarily to the slowdown in the economy coupled with above-inflation average new vehicle price increases.

He said Naamsa anticipated that expected new vehicle price increases exceeding the inflation rate would for the second consecutive year be the key factor affecting sales this year.

However, Vermeulen said there were a number of positive factors that could lend support to the industry. These included, among others, the low interest rate environment and substantial ramp-up in public infrastructure spending.

Vermeulen added that demand by the car rental industry was expected to remain strong this year and should continue to make a positive contribution on the back of further expected growth in tourism and business travel.

Sydney Soundy, the head of vehicle asset finance at Standard Bank, said last year was the third best year for domestic vehicle sales and the baseline from which to project growth this year was fairly high.

Taking into account this and the prevailing factors that would be influential on the domestic market, growth this year was likely to be muted at about 2 percent, he said.



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