Johannesburg - Confidence in new car sales activity among dealers has declined to levels last seen three years ago, driven partly by supply constraints following the motor industry strikes in August and September.
The WesBank vehicle sales confidence indicator for the fourth quarter, released yesterday, showed dealer confidence dropped from 5.65 on a 10-point scale to 5.58, a level last seen in October 2010.
The deterioration has been quick and severe. Dealer confidence dropped in the second quarter by 0.7 points to 5.6 from 6.3, the biggest single movement since the indicator was launched in September 2007, after hitting 6.5 in January.
Cyril Zhungu, the executive head of WesBank’s motor division, said dealers’ confidence about future sales activity levels was fairly positive at 6.5 in the next three months, rising to 6.9 over the next six months.
In the second quarter the projected dealer confidence for the next three months was at 6.8, rising to 7 for the six-month forward outlook.
Zhungu attributed the decline in current sentiment to supply disruptions that had a lagged effect and the moderation in consumer demand caused by the impact of higher new car prices on affordability and the level of household disposable income to debt levels. He said it would take the industry about three to four months to catch up on lost production.
The sharp deterioration in confidence was a sign of the new car market “normalising”.
Zhungu said applications for vehicle finance at WesBank grew between 3.4 percent and 4 percent year on year in this quarter compared with 10 percent at the start of the year.
“We have always had this view that the performance of the motor industry, as measured by vehicle sales, cannot exceed gross domestic product (GDP) growth by a large margin. WesBank’s outlook for the remainder of 2013 is that the growth rate of new vehicle sales should moderate and fall in line with the expected GDP growth rate,” he said.
Used car dealers also lost confidence although overall they remained more optimistic than new vehicle dealers. Used car dealers reported that activity was beginning to improve.
Zhungu said this was supported by WesBank’s ratio of new to used vehicles financed, which had moved from 1.1 in the last quarter to 1.3 in the current quarter. “Used car prices are in a state of deflation while new car prices are rising, largely due to the impact of the weaker rand/dollar exchange rate, which has had a direct impact on the prices of imported vehicles sold in the local market.
“This widening price gap… has resulted in a notable increase in activity in the used car market. (But) we may see a seasonal decrease in the used car market in the next three months as customers take advantage of new models and marketing incentives in the new car market.” - Business Report