South Africa’s new car market defied the slowdown in economic growth to post annual growth in 2022, ahead of forecast annual growth of 13.9%, according to statistics released by Automotive Business Council Naamsa on Monday.
However, industry players have warned that sales prospects for this year may not be all that promising.
The council reported that total sales of new vehicles rose to 528,963 units in 2022, but total sales are still 1.4% below pre-Covid-19 pandemic levels (536,612 units sold in 2019).
However, Naamsa CEO Mikel Mabasa said that December 2022 new vehicle sales recorded 12 consecutive months of year-on-year growth.
SA vehicle market growth
Mabasa said the double-digit sales growth in 2022 follows sales growth of 22.2% to 464,493 units in 2021 compared to the 380,206 units in 2020 following the pandemic.
“The performance of the new car market in 2022 remained robust despite multiple domestic and international headwinds,” he said.
Headwinds included global supply chain disruptions caused by the Covid-19 pandemic, Russia’s invasion of Ukraine, the impact of the devastating KwaZulu-Natal floods, increased inflation, an upward trend in interest rates, record fuel prices and record highs in Ukraine caused the frequency and intensity of load shedding, which weighed heavily on both business and consumer confidence.
“Despite the myriad negative economic pressures and ongoing supply shortages, the new car market has continued to exceed expectations in 2022,” Mabasa said.
“However, the consumer trend is to buy cheaper and smaller cars, mostly SUVs [sport utility vehicles] or crossovers, continued in 2022.”
Double digit growth
Azar Jammine, Econometrix’s chief economist, said the fact that the new-vehicle market saw double-digit growth in 2022 was “well above the low-single-digit growth that was expected a year ago.”
However, Jammine cautioned that growth in sales is unlikely to have been matched by sales growth due to the switch to cheaper entry-level vehicles from the more expensive luxury segments.
He said this shift skewed new vehicle sales numbers in terms of units.
Jammine believes part of this shift is due to preemptive buying, as people expect vehicle prices to rise faster as the rand depreciates against the dollar, unaware that the rand has only recently depreciated against other currencies than the dollar.
He added that while interest rates have risen, they are not as high by historical standards.
Strong value proposition
National Automobile Dealers’ Association (Nada) Chairman Mark Dommisse agreed that the volume of new car sales was much stronger than expected, particularly in the final months of 2022.
However, he believes new vehicle sales will be driven by the strong value proposition in the R300,000 to R450,000 small SUV segment and still fairly low interest rates.
“If you look at the peach segment, it’s certainly in that small SUV segment. All players [manufacturers] go into this SUV segment. If I were to buy a car today, I would certainly look there first,” he said.
Nada director Gary McCraw said it was astonishing that the continued growth in new car sales was achieved in a year in which Toyota lost about 70,000 units of local production to the catastrophic floods in KwaZulu-Natal that shut down its plant for four months put .
Figures released on Monday showed that new car sales rose 19.3% year-on-year to 363,092 units in 2022 from 304,341 units in 2021, while sales of light commercial vehicles (LCVs) rose 2% from 133,077 units 135,666 units have gone up.
Jammine believes that “some substitution effect” has caused the underperformance of LCVs compared to passenger cars.
However, he’s unsure how much of the difference in performance between these two segments was caused by supply issues, leading consumers to choose to buy cars over light trucks.
Sale of commercial vehicles
Mid-size commercial vehicle sales increased 11.3% year-on-year to 8,370 units in 2022, while heavy-duty truck and bus sales increased 11.7% to 21,835 units.
Despite the production disruption at the Toyota South Africa Motors plant caused by the floods, vehicle exports increased by 17.9% to 352,450 units in 2022 from the 298,020 units exported in 2021.
Naamsa believes the new car market will remain robust in 2023 despite weaker domestic economic indicators and a deteriorating global growth outlook.
However, Mabasa said that South Africa’s GDP growth continues to be revised downwards and is now expected at 1.1% in 2023.
“Given the close correlation between new car sales and the country’s GDP growth rate, single-digit growth in new car sales could be expected in 2023 when the market returns to pre-pandemic levels in sales and exports,” Mabasa said.
Jammine expects new vehicle sales growth to be very low — between zero and 5% and possibly even negative growth — in 2023 due to the sharp rise in interest rates and the fact that the global economy has already slowed, which will negatively impact its bottom line economic activity.
“South Africa is not immune to this and it will affect export markets more than the domestic market, but the domestic market will also feel the headwind,” he said.
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Vehicle sales trends
Jammine added that new vehicle sales trends are not related to the actual rate of growth of the economy but to the rate of change in economic growth, and Econometrix’s economic growth forecast for South Africa in 2023 is “well below 1% and thus we would predict very low growth”. see the vehicle sales”.
“The other big elephant in the room is load shedding and the way it is likely to dampen domestic economic activity and impact economic growth and job creation across the board, which in turn will help boost vehicle sales. he said.
Nada expects continued growth in the new car market in 2023, but perhaps not at the pace previously anticipated.
McCraw said many of the factors that hampered the auto industry in 2022 will unfortunately still exist in 2023.
This article first appeared on Moneyweb and has been republished with permission. Read the original article here.
Roy Cokayne has been a financial journalist for 34 years and has focused primarily on the automotive, construction and real estate industries. He is fascinated and passionate about life, life, truth and justice.