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< Blog 3Oct_2016
Economics Main Page >

Passenger Vehicle Sales in South Africa paints a sad picture

Category: New vehicle sales and motor trade 
Date: 4 October 2016

Related Topics

We take a at one of the best indicators of economic activity. New passenger vehicle sales. When the economy is doing well and ticking over strongly, new passenger vehicle sales is one of the first variables to reflect this. As it makes up a large part of consumer spending on durable goods. We take a look at the monthly passenger vehicle sales as well as it's 13 term moving average (to smooth out the noise and get to the underlying trend in the series)
  • Monetary Fiscal Policy Mix
  • Consumer Spending per durability type
  • Consumer Spending Patterns per income group

New Passenger Vehicles

chart created with amCharts | amCharts
The graphic above shows the monthly new passenger vehicle sales in conjuction with a 13term moving average applied to this data set in order to get a smoothed out underlying trend. 13 term moving average is used as it reflects a full year and therefore removes "noise" contained with in the monthly data series as it takes the average of the last 13 data points.

So why is it that new passenger vehicles is a good indicator of economic activity? Well when more people are employed, or confident that they will stay in their jobs, they are more willing to spend money. Spending on something like Housing for example is more infrequent, and spending on non-durable goods such as food is a more regular expense less influenced by economic activity.

Thus spending on semi-durable goods bridges the gap between durable goods such as housing and non durable goods such as food. It is extremely sensitive to monetary policy (interest rates), as a large portion of new vehicle sales is financed using a loan agreement. Increases in interest rates makes the cost of debt higher which in turn affects consumer's ability to pay for new vehicles.

New passenger vehicle sales hit a high in September 2014, with 42 915 vehicles sold, and it has not seen sales near those levels since. In fact a year later new vehicle sales for September 2015 was sitting at 37 309 (down 5 606 vehicles or -13.1% from the year before), and by August 2015 the new vehicle sales recorded sat at 30 350 (a decline of 12 565 vehicles or -29.3%

When looking at the moving average (after the noise of monthly movements have been removed), the highest point reached was in February 2014 with 37 346 vehicles, and since then the new vehicle sales moving average has been declining, reflecting the lack luster demand brought on by not only increased interest rates, lay offs in various industries and higher vehicle prices (due to a weakening exchange rate leading to higher prices of imported vehicles). By August 2016 the new vehicles moving averaged showed an average of 32 215 vehicles sold during last 13 months (a decline of 13.8% from the high achieved in February 2014).
When the decline in vehicle sales is looked at from both the month on month sales and the moving average, it is clear that the industry is suffering and technically in a recession, and the last set of numbers does not reflect a strong growing economy. 

With inflation moderating, the exchange rate appreciating in recent months and the risk of credit ratings downgrade to junk status looking less likely, the case becomes stronger for the South African Reserve Bank (SARB) to not only stop the interest rate hiking cycle, but perhaps even opening up the door for interest rate cuts, to offer struggling and indebted South African consumers and it's economy some much needed relief.

Related Topics

  • Monetary Fiscal Policy Mix
  • Consumer Spending per durability type
  • Consumer Spending Patterns per income group​


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