South Africa's vehicle sales in the dumps
Category: New vehicle sales
Date: 26 July 2017 |
Related Topics |
In today's blog we take a look at South Africa's vehicle sales, for both new and used vehicles and find that the industry is down in the dumps, and the recent interest rate cut announced by the South African Reserve Bank (SARB) monetary policy committee (MPC) will have little to now impact in dragging the industry out of it's current lows.
|
Numbers can be deceiving
When looking at the new and used vehicle sales over time as published by Statistics South Africa (Stats SA) one would be forgiven for thinking that the motor trade industry is not doing to badly, considering sales values are far higher than it was in 2008 and 2009. See the graphic below for monthly sales values from January 2008 to May 2017, for both new and used vehicles.
What readers should keep in mind is the fact that motor trade sales (MTS) is published in current prices or nominal values. I.e the values are not adjusted for inflation. Thus the growth shown and experienced in current prices are partly due to inflation, and not necessarily underlying growth in the sales of new and used vehicles. From January 2008 to May 2017, new vehicle sales values increased by 32.4% while used vehicle sales increased by 79.9% over the same time period. That is significant growth growth over time, but the question is what would the story look like if we stripped inflation out of these sales values?
The graphic below shows new and used vehicle prices in which inflation has been removed and all values expressed in terms of January 2008 prices.
The graphic below shows new and used vehicle prices in which inflation has been removed and all values expressed in terms of January 2008 prices.
So while there is a clear upwards trend in both new and used vehicle sales when looking at current prices, when inflation is stripped from the figures the picture painted by the above graphic is vastly different. New vehicle sales shows a 22% decline from January 2008 to May 2017 when the effects of inflation is removed from the sales values. Thus no real growth in new vehicle sales took place, in fact a contraction in the market for new vehicles has taken place. Used vehicle sales when stripping out inflation has shown a mere 6% growth from January 2008 to May 2017. That's less than 1% growth per year for the last 9 years. Clearly showing how much the motor trade industry is struggling. And during though times more and more consumers by used vehicles as opposed to new vehicles.
The recent 25 basis points cut announced by the MPC will do little to solve the industries problems. Disposable income of consumers are under significant pressure and strong vehicle price increases (largely due to a weak exchange rate affecting import prices of vehicles) over the last number of years (69% increase in vehicle prices from January 2008 to May 2017) has meant new vehicles have become to expensive for potential buyers.
Expect to see a lot of new vehicle dealerships close their doors while used vehicle dealers will pop up and existing ones will flourish as consumers shy away from new vehicles and rather buy used vehicles.
Expect to see a lot of new vehicle dealerships close their doors while used vehicle dealers will pop up and existing ones will flourish as consumers shy away from new vehicles and rather buy used vehicles.