CONSUMER INDEBTEDNESS AND ECONOMIC UNCERTAINTY AFFECTING VEHICLE SALES
Passenger car sales for June were down 6.6% compared to the same month last year. This is largely attributed to weaker sales through the passenger car dealer channel, which were down 1.7%. The continued decline in rental sales of passenger cars also affected volumes.
Light Commercial Vehicle (LCV) sales have shown resilience and experienced a 1.5% increase, year-on-year, supported by government purchases, which were up 115%, year-on-year. However, LCV sales through the dealer channel were down 8%.
“Were it not for government sales of 2 483 units, the LCV market would effectively have shown an even larger decline,” said Simphiwe Nghona, Executive Head the Motor Division at WesBank.
Sales for the rest of the commercial vehicle sector, including medium, heavy, extra heavy commercial vehicles, as well as buses, were down 14.8%. The recently published RMB Bureau of Economic Research business confidence index reports that business confidence levels are currently low, and declining. As a result buyers in this segment are extending their replacement cycles, choosing instead to hold on to existing assets.
“A number of economic factors are at play and have affected new vehicle sales in almost all segments,” said Nghona. “Consumer budgets are under pressure, interest rates are expected to increase, and uncertainty in the economy has affected business confidence.”
Despite the decline in sales, consumer demand for credit remains healthy, as seen in WesBank’s data for finance applications. Year-on-year, finance application volumes have grown 11.8%. Of this, new vehicle finance applications experienced 9.3% growth while used vehicle finance applications increased 13%, year-on-year.
WesBank’s data attributes this to consumer indebtedness. Household debt levels remain high, resulting in a deterioration of consumer credit profiles. Combined with recent amendments to the National Credit Act (NCA), which have resulted in more prescriptive lending criteria, more applications are being declined.
“The reasons for the decline in passenger sales point to consumers needing to carefully consider their affordability – and ability to service their existing debt,” said Nghona. “Those who can afford a new car are having to deal with higher prices for new cars, increased personal taxes, and climbing fuel prices.”
New vehicle price inflation continues unabated. The depreciation of the rand has resulted in car prices reaching all-time highs, with a corresponding increase in the value of all new vehicle finance deals. Other knock-on effects of the currency’s weak performance include higher fuel prices, with consumers having faced four increases in the fuel price to date, in 2015.
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