The National Association of Automobile Manufacturers of South Africa is not optimistic about the sector, stating that it expects a drop in new vehicle sales this year but an increase in rental cars.
The National Association of Automobile Manufacturers of South Africa (NAAMSA) expects a decline of between 3 to 5 per cent in new vehicle sales for 2016.
"We are actually anticipating that the car market will decline by around 9 per cent and the reasons for that are clearly a poor economic growth environment, we anticipate the GDP, at best, will come in at about 0.5 per cent,” said Nico Vermeulen, Director of NAAMSA.
Another contributing factor is the current interest rate hiking cycle Vermeulen says, and a strong inverse relationship between interest rates and new vehicle sales.
“When interest rates go up, the amount for new vehicle motors goes down and vice versa,” said Vermeulen.
“Over and above that - as a result of the severe weakness in the exchange rate - it is anticipated that the vehicle pricing increases this year will be well above inflation and that too will depress demand for new cars.”
Consumer affordability will be the reason many companies will find themselves under pressure this year explains Kamilla Kaplan, Economist for Investec.
“Affordability will be affected by the rising living costs associated with electricity and water tariff increases, high unemployment levels and credit growth extended to consumers is slowing,” said Kaplan.
Kaplan also refers to data from the National Credit Regulator which states that over half of credit active consumers are struggling to repay their debt on time.
“So certainly the consumer is under significant strain and they face the prospects of tighter fiscal and monetary policy this year,” said Kaplan.
However it's not all gloom and doom though, according to the NAAMSA director. “Dealers also sell used vehicles and as a result of the above inflation price rises in case of new vehicles, there is likely to be a definite shift to used vehicles,” said Vermeulen.
From another perspective, the car rental business is doing well considering, and this is on the back of tourism and business travel said Vermeulen.
“So hopefully that will provide some support to the new car market in the month ahead,” he said.
On a more positive note, Vermeulen anticipates exports could grow as much as 20 per cent due to continued production.
“Domestically the industry will be under pressure and margins at dealer level will be under severe pressure, it is also true that from a production point of view the industry should do quite well.”