Further drop in new car sales points to looming recession

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Roy Cokayne

Total new vehicle sales last month declined significantly for the second consecutive month, providing another signal that the economy is sliding into recession.

Figures released yesterday showed total new vehicle sales dropped last month by 9.2 percent year on year to 49 465 units from 54 490 vehicles sold in May last year. This follows a 10.7 percent drop in April.

New passenger car sales slumped 11.3 percent year on year last month to 32 984 units, following a 10.6 percent year-on-year decline in April.

Kamilla Kaplan, an economist at Investec, said passenger vehicle sales could be considered a leading indicator of household consumption, and a slowdown was signalled.

Kaplan said personal consumption dynamics had “meaningful implications” for growth in gross domestic product (GDP), “given its two-thirds contribution”.

Nico Vermeulen, the executive director of the National Association of Automobile Manufacturers of SA (Naamsa), said the economy was losing momentum and risked moving into recession.

“The decline in first-quarter GDP [growth] to negative levels, the dramatic decline in the purchasing managers’ index, particularly the business activity and employment index components, the sharp rise in producer inflation and the worsening trade deficit all confirmed the advent of a more difficult economic environment.

“As a result, the domestic automotive market is likely to continue to face headwinds over the short to medium term,” he said.

Naamsa expected at this stage that this year’s total vehicle sales would be between 3.5 percent and 5 percent lower than last year.

Sales of new light commercial vehicles, bakkies and minibuses last month declined 5.1 percent year on year to 13 866 units and medium commercial vehicles by 14.4 percent to 830 units. But sales of heavy trucks and buses rose by 4.3 percent to 1 785 units.

Kaplan said light and medium commercial vehicles were associated with the wholesale and retail sector and a drop in sales volumes in these segments “could indicate that there is an expectation of decreased consumer spending and a slowdown in general business activity”.

Locally manufactured vehicle exports dropped 40.5 percent last month to 15 613 vehicles from 26 252 vehicles exported in May last year.

This was the result of Mercedes-Benz South Africa’s suspension of exports as it discontinued production of the old Mercedes-Benz C-Class model and ramped up production of the successor.

The momentum of exports was expected to improve from the middle of the year.

Rudolf Mahoney, the head of research at WesBank, said its total number of finance applications rose 16 percent on the year to a record of 124 770 applications. However, most of this growth came from applications for used vehicles, which grew by 21 percent year on year while new vehicle applications grew 5 percent.

Mahoney said, historically, GDP contraction was associated with increased activity in the used vehicle market while GDP growth correlated with a strong performance in the new vehicle market as the economy flourished.

He attributed the record number of applications largely to the credit data amnesty introduced in March, saying there appeared to be a level of misunderstanding among consumers about the amnesty.


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