WesBank has predicted that the South African vehicle market will shrink by 12 percent this year and that potential car buyers could face steep inflation in the coming years if prudent economic steps are not taken by government.
Speaking at the annual Car of the Year banquet on Tuesday night, WesBank CEO Chris de Kock presented four potential scenarios that South Africa faces in the coming years, each supported by a substantial percentage of economists:
Upside Scenario (13% of economists)
Core expectation (39%)
Risk Scenario (26%)
Stress Scenario (22%)
The bleakest of these, deemed Stress Scenario and supported by 22 percent of economists, sees prolonged global economic weakness while South Africa suffers persistent low growth and even dips into recession. This scenario also works on the assumption that local policy makers continue to make mistakes.
Should this all pan out, with the rand falling to around R22.90 to the US Dollar, you could expect car prices to rise by up to 84 percent by 2019, meaning that a relatively entry-level car such as a Toyota Etios, which costs R144 300 today, could set you back a painful R265 500 by 2019.
Would you rather swallow the optimistic pill?
De Kock also painted an Upside Scenario, supported by 13 percent of economists, and here policy makers embrace fiscal consolidation and growth-supportive structural changes in the economy. This scenario sees the rand improve slightly from today's levels, while the country gradually returns to decent growth and inflation is moderate.
The most likely situation, however, is what De Kock referred to as the Core expectation and this is the second-best outcome among the predictions and it also factors in a credit rating downgrade to junk status. The Core expectation sees a gradual weakening of the rand to R17.20 to the US dollar by 2019 and low GDP growth. WesBank also expects interest rates to rise by 125 basis points over the next three years.
How would car prices be affected? According to WesBank, vehicle prices would rise 39 percent between now and 2019 and our aforementioned R144 300 budget car would thus cost a shade over R200 000 by then.
EFFECT OF THE RAND
"The movement of the Rand will be key for the new vehicle sales performance in South Africa. A deteriorating currency will force manufacturers to increase prices more aggressively. This will push new vehicle price inflation well outside that of headline CPI, thus sending more buyers to the used car market," said de Kock. "Interest rates will also play an important role in affordability and the demand for credit, as has historically been the case."
2016 DOWNTURN
In line with these trends, the financier predicts that 2016 will see overall vehicle sales fall by 12 percent to 543 306 units, down from 617 691 in 2015. The second half of this year is likely to be even tougher, with passenger car sales falling by up to 15.5 percent year-on-year due to even heavier price hikes - remember car companies are still carrying stock of cars they bought when the rand was stronger, so the full effects of the currency's plunge have yet to be felt.
If you've been planning to buy a new car, best you do it soon.