New vehicle sales to remain under pressure as confidence evades consumers

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(Mohssen Assanimoghaddam / Getty Images)
(Mohssen Assanimoghaddam / Getty Images)

• The South African motor industry is still reeling from the effect of Covid-19. 

• New car sales were severely affected with a decline of close to 30%. 

• In the third quarter of 2020 2.35 used vehicles were bought for every new car. 

The economic fallout of Covid-19 dealt the local motor industry a heavy blow in 2020.

New vehicle sales dropped to their lowest number since 2003 as millions of South Africans struggled financially as the economy virtually came to a standstill.

A trend towards downscaling from more expensive vehicles to more affordable cars started as soon as dealers fully reopened in June after the motor industry was closed in April and only ran at minimal capacity in May.

In April 574 vehicles were registered, May saw that number increase to 12 296 and 31 642 in June. New car sales have been particularly hard hit.

The National Association of Automobile Manufacturers of South Africa (Naamsa) reported a decline of 33% in new passenger vehicle sales in the third quarter of 2020, compared to the same period a year prior.

A total of 380 449 vehicles were sold in the last 12 months. The last time that many cars were sold was twenty years ago. That indicates how badly the industry was affected by the pandemic. 

A trend towards used cars 

The combination of higher vehicle prices and less disposable income as wide-scale retrenchments and salary cuts affected many South Africans and steered many to browse used car classifieds.

Data collected by Transunion SA Vehicle Pricing Index shows in the third quarter of 2020, 2.35 vehicles were bought for every new car, a slight increase compared to Q3 2019 at 2.31.

The findings are based on finance deals completed in the last year, according to Transunion SA.

It's expected that the ratio will remain the same for 2020 Q4 data when it's released. New vehicle prices and used vehicle prices increased considerably compared to the previous period the year before.

According to Transunion, the VPI for new vehicles increased by a whopping 7.6% from 3.3% compared to Q3 in 2019. Used vehicle pricing saw an increase of 2.3% from 1.1% according to the report.

Transunion measures its VPI on year-on-year price increases for new and used vehicles from a basket of passenger vehicles of the 15 top manufacturers by volume. The index is created from vehicle sales data collated from across the industry.

Consumers have benefited from low-interest rates throughout 2020. The central bank's decision to hold the prime lending rate at 7% earlier this month was another small win for households across the country paying a debt.

The central bank has cut the interest rate by 300 points. However, consumer confidence remains low as the country battles a second wave of the coronavirus and the government's decision to extend the Level 3 lockdown restrictions. 

Naamsa's bullish predictions for 2021 with a 15% recovery for new vehicle sales volumes, according to Fin24

Used car sales are likely to remain healthy although Mark Dommisse, chairperson of the National Automobile Dealers' Association (NADA) says he is concerned about a decrease in supply in 2021. This will negatively affect the industry.

2021, like the previous 12 months will be challenging for all stakeholders in the country's motor industry. 

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