CAPE TOWN – The motor industry in South Africa is feeling the brunt of the country's widespread retrenchments that are hitting all sectors hard, significantly reducing consumers’ spending power.
This is according to WesBank executive head of Motor Division Ghana Msibi, who said consumers simply could not afford to replace their vehicles, let alone enter the market for the first time. “The economy remains tough.”
The reality of the country's struggling economy is evident in regular reports of new rounds of retrenchments across different industries.
In the first half of 2019 alone, a litany of major corporate names announced significant job cuts, including the likes of Standard Bank, Absa, Group Five, Dunkin Donuts, PPC Cement, Tiso Blackstar and Tongaat Hulett, among several others.
Nkazi Sokhulu, co-founder and chief executive of credit life insurance brand Yalu, described this was a worrying time, saying the main concern was what to do about workers’ loan payments should they be retrenched.
Consumers might have enjoyed some reprieve from the interest rate cut in July, but the motor industry did not. New vehicle sales continued their downward trend according to results released by the National Association of Automobile Manufacturers of SA (Naamsa).
Naamsa reported that aggregate domestic vehicle sales at 46 077 reflected a decline of 1 779 units or 3.7 percent compared with 47 856 vehicles sold in July last year. July’s new passenger car market registered a decline of 2 617 cars or a fall of 8.2 percent to 29 477 units compared with the 32 094 new cars sold in July last year.
Msibi said while the interest rate cut in July was warmly welcomed by industry and consumers alike, it might take some more incentive from the SA Reserve Bank to jump-start the economy and entice consumers back into the new vehicle market.
“While small and its effects will be enjoyed by household incomes in the longer term, another cut before the end of the year would be welcome and effective.
“WesBank experienced its best month this year in applications received for finance. While this clearly didn’t translate into sales, it is reassuring for the industry that consumers are at least shopping for vehicles,” he said.
Such behaviour was indicative of a market expecting interest rates to decline.
Passenger car sales on dealer floors fell by a significant 7.6 percent in July 2019, highlighting the extremely challenging economy for business at present. This was despite an additional trading day in July, which was the longest selling month this year with 23 working days.
Mark Dommisse, chairperson of the National Automobile Dealers’ Association, said the 25-basis point interest rate cut in July was reassuring.
“However, in order for the rate cut to have any significant impact, it needs to be accompanied by robust structural reforms that deal with key underlying issues in the economy.
"We implore the government to aggressively pursue its efforts to stimulate growth.”
Dommisse also said that the rise in bank finance applications was encouraging. “Affordability remains a key factor in motorists’ purchasing decisions. We have seen a substantial drop in the luxury segment of the market.
“On a positive note, light commercial vehicle (LCV) sales at dealer level made a comeback, but year-on-year LCV sales are down. The medium and heavy commercial vehicle segments also showed a strong recovery this month.
“The continued decline in new vehicle sales reflects the current political and economic environment.
“Consumers will continue delaying decisions on big-ticket items such as new vehicles until we have greater stability all round,” said Dommisse.
The Reserve Bank recently reported that South Africa was stuck in its longest downward business cycle since 1945, while the official unemployment rate jumped to 29 percent in the second quarter of 2019 – the highest jobless rate since 2008.
Calvyn Hamman, senior vice-president of sales and marketing at Toyota South Africa Motors, said the downward economic pressure remained acute and consumers were clearly being cautious about incurring any additional debt.