Rate cut likely to bolster car sales

Prospective new vehicle owners who were “sitting on the fence” about the timing of their purchase are likely to be nudged to action by last week’s interest rate cut, resulting in a short-term spike in car sales.

However, Chris de Kock, the executive head of sales and marketing at WesBank, said yesterday that the growth in new vehicle sales in the second half of this year was unlikely to match the strong 10.46 percent year-on-year growth for the first half of this year.

Interest rates at 40-year lows may inspire consumers to buy new cars as monthly repayments on vehicle finance fall, but analysts expect other financial pressures to slow growth. Photo: Simphiwe Mbokazi. Credit: inlsa

De Kock said WesBank had forecast 6 percent growth in new vehicle sales for this year as a whole, which meant growth in the second half would have to be between 4 percent and 5 percent.

He believed the interest rate reduction would nudge new vehicle sales growth closer to 6 percent for the second half of this year and to about 8 percent for the full year.

De Kock said an interest rate cut would have a positive impact on car sales and extend the strong new vehicle sales cycle but doubted this growth would be sustainable.

Chris Hart, an economist at Investment Solutions, said the interest rate reduction would support a further boost in new vehicle sales, particularly as at the beginning of the year interest rates had been viewed as being at the bottom before the start of another hiking cycle.

Hart believed there would be another two interest rate cuts, probably in the fourth quarter of this year and early next year, but possibly at the next two monetary policy committee meetings. He said the interest rate reduction might also “set something alight in the housing sector”.

However, Hart suspected that if the Reserve Bank wanted to push the credit side of the economy through interest rates, it needed to also push the liquidity side to free up bank lending.

De Kock said the impact of any increase in interest rates was felt in the consumer market six months afterwards because consumers underestimated the impact and it took two or three months of higher mortgage bond and personal loan repayments to force consumers to tighten their belts.

Consumers reacted more quickly to an interest rate decrease because they acted on a “guesstimate” of the reduction in their mortgage bond and personal loan repayments.

De Kock said the major factor driving new vehicle sales was that consumers could trade in their current car, buy a new one and pay less in monthly repayments because interest rates were at a 40-year low and consumer inflation was declining.

The growth in new car sales was exaggerated by the pulling of consumers from the used car market into the new car market, he said.

“While consumers are still buying, we do expect the market to tighten in the second half of the year as increasing financial pressures, such as low wage increases and the impact of rising inflation, weigh on consumers in the future,” he said.