Toyota South Africa, the local operations of the world's biggest car making company reported to us that sales volumes for new cars where muted in the first month of 2014. January sales saw a decrease of 6.8% month-on-month with January 2013. The tally racked up 10 659 sales (this number excludes used Toyotas for sale in South Africa, but just new cars). This post is a follow up to my previous analysis that you can find on http://www.news24.com/MyNews24/What-a-Weak-Rand-Means-for-Used-Car-Buyers-20140121.
In the previous article, I discuss how the weakening currency and inflation will affect the car buying consumer. Well, in just after a week, the first of the two has affected us. When Gill Marcus and the Monetary Policy Committee at the South African Reserve Bank decided on a REPO rate hike, their biggest concern was a Rand, which on Monday breach the psychologically important R11/US$. This, coupled with rising inflation, a great deal of which is because of petroleum imports, will affect the likes of Toyota and its peers greatly.
However, moving further from that is another issue that we need to factor in. This, 2014, is an election year. The world, or at least those foreigners who have social and economic interests in South Africa, will be watching us with a hawk's eye. At every election, many promises are made, and immediately after the new government has been put in place, many of those promises are either neglected or take longer than first proposed.
South Africa's official opposition party failed to conclude a merger with the fledgling Agang SA. The press conference detailing the agreement between the DA and Agang was a spectacle – friendly kisses and hugs flying around like rainbows where shooting off people's behinds. But in little less than a weak, the unfortunate (or fortunate) de-merger of the two parties was at hand. This sort of instability, which is not so uncommon at around this time of the year with any of the main contesting parties makes our outside observers uncertain. It is that uncertainty that might see the flight of capital and resources to South Africa, thereby affecting our industries – big and small – from the automotive, which I evaluate extensively, to the corner spaza.
More specifically the automakers, the weak Rand makes the case for exporting our manufactured cars more plausible. Toyota in Durban, Volkswagen in the Eastern Cape, and all the other manufacturers up North will be faced with a choice of making more money selling what they make overseas, or be forced to sell to a depressed South African consumer, whose demand, in fact, won't increase that much given the circumstance. When interest rates rise (as a result of the SARB increasing the REPO to curb rising inflation), it becomes more costly to own a car. Repayments go up, and so does every other interest on the loans you have. The appetite for new cars becomes depressed, and cheaper alternatives, usually a used car or public transport suddenly becomes the best option. We cannot do much about the prices of petrol and diesel because we live in a world where the price of Crude Oil is set to rise even further than the $100/barrel it's been trading at. The only hope for a decrease on our side is if the Rand strengthens.
Again, like I focused on the previous article, the case for second hand cars (if you really want to own a car) and public transport is more compelling as we move forward. And as all the major car makers roll out newer generations of their vehicles, which will obviously cost even more than a new version of the most previous model, means forking out more to own a motor vehicle.
I hope this advice has been helpful so far.