Green light flashes for the automotive industry

2010-02-06 12:31

THE January new car sales, which exceeded market expectation, are

interesting because it’s their first increase in 10 months.

The 15.5% annual increase has a lot to do with January last year

recording the lowest monthly sales since 2001. Of the 34 000 units sold in

January, the lion’s share represented the dealer/retail component of the market,

while corporate and government sales were 5.4% and 3.5% respectively.

Considering the declining trend in credit extension to consumers,

it is difficult to determine where funding for the vehicles to the dealer/retail

segment is coming from. The January Private Sector Credit Extension numbers, due

for release later this month, should shed more light on the matter.

If credit extension continues to decline it can be assumed that

dealers are carrying more stock than the previous comparison period in

anticipation of future sales. Therefore, this implies that there is a strong

likelihood that the February sales numbers will be disappointing.

Despite the numbers not being much to get excited about, there are

key factors that are expected to support the long-suffering vehicle market this

year. These include the expected influx of visitors for the Fifa World Cup,

which will force car-rental companies to increase their fleets, and the buses

that have been ordered for the World Cup are also expected to play a positive


There is also hope that the impact of the five-percentage-points

decline in interest rates from 2008 will bring buyers back into the


But new vehicle sales might continue to be affected by the sale of

bank repossessed cars and the decline in spending patterns of the emerging black

middle class, whose spending power has been curbed by the high debt burden and

financial insecurities.

The vehicle sales, production, export and import data from 1995 to

last year show a positive correlation between economic growth and domestic

production. For example, when South Africa’s economic growth peaked at 5.6% in

2006 more than 500 000 units were produced locally. Last year alone, when the

economy declined 1.5%, production fell to 371 000.

Against this background, this year’s vehicle production projections

of 434 000 units seem optimistic given that the economy is expected to grow at a

modest 2.5%.

The health of motor vehicle sales is important to the local

economy, as the automotive industry’s contribution to the economy was 7.3% in


The new vehicle manufacturing sector employed more than 32 000

people last year, with 2 500 having lost their jobs. The effect is much higher

if one considers related industries such as components and transport.

To offset this the government should consider creative ways to

boost production levels in this vital sector. This would not only translate into

job creation but also boost the growth of related industries. The knowledge that

South ­Africa produced only 0.8% of the 58 million vehicles produced worldwide

means there is scope for more growth.

The government can consider incentives to boost the domestic buying

sector. Options include introducing legislation that can force motorists to

retire their vehicles after a certain period or mileage. Such measures would

boost growth, promote employment, have a positive spin-off on the green global

initiative. Also, it will rid our roads of old, road-unworthy vehicles.

Such incentives may be expensive in the short term but they will

benefit the economy in the long term through additional revenue generated from

new car sales, increased tax base and, most significantly, a reduction in the

financial impact of road fatalities.

A strategy to boost vehicle sales and ­production is important,

especially given the significance of the automotive industry in the Gauteng,

Northern Cape, KwaZulu-Natal and Eastern Cape economies.

  • Langeni is the chairperson of the

    Afropulse Group

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