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South Africa’s Vehicle Market Has Shrunk By 25% In 13 Years

The year was 2006, just 12 years into our new dawn. Contractors were chugging away at new stadiums as ordinary South Africans were counting down to the 2010 Soccer World Cup. Business owners were chinking champagne glasses too, with the South African economy growing by more than five percent a year.

South Africa was reaching for the stars and the motor industry was gleefully riding the wave, with an all-time record of 714 340 vehicles sold in that year. In 2005, WesBank’s then CEO Ronnie Watson had predicted that annual sales would approach the million mark early in the next decade and that was starting to look more plausible than ever.

Then came the Great Recession of 2008, along with load shedding, and the following decade South Africans became well versed with terms like State Capture, while economists became accustomed to putting a zero at the beginning of annual GDP growth figures.

But the hard-hitting truth of the economic reality is perhaps best demonstrated by South Africa’s annual vehicle sales figures. We were meant to be selling over a million a year by now, weren’t we? But in 2019, total sales amounted to just 536 626, which is 2.8 percent less than the year before.

But a far more sobering fact is that the vehicle market is actually 25 percent smaller than it was 13 years ago, as highlighted by Toyota SA’s President and CEO Andrew Kirby at last week’s State of the Motor Industry (SOMI) address held at Kyalami.

Kirby expects the South African vehicle market to shrink even further to 515 000 units in 2020. He pointed out that there had been a great deal of “forced selling” in the second half of last year as dealers discounted heavily to clear stock that was ordered in anticipation of a market rebound.

But where is the car market heading in 2020?

The economy faces some potentially big headwinds this year, such as the anticipated downgrade to junk status by Moody’s and the worst bout of load shedding that we’ve experienced to date. But as Rand Merchant Bank chief economist Ettienne le Roux pointed out, there are still a few positive aspects that could counteract the aforementioned factors to some degree. Global economic growth is expected to rise from 2.9 percent to 3.3 percent, assuming that the coronavirus is contained to some degree. That should boost local exports, while some of SA’s most abundant natural resources, such as platinum and gold, are currently increasing in price. Inflation is also expected to remain fairly subdued, at 4.1 percent, while consumer spending remains at a consistent 1 percent.

However, the overall socio-political landscape is really not conducive to attracting investment as independent economist Dr. Thabi Leoka pointed out so perfectly at SOMI: “The house internally is dirty, and you are going out to the world to invite investors to come and eat in this house of chaos… We need to focus on cleaning this house first.”

Exports are the saving grace

If there is one silver lining in the local motor industry it’s export sales, which have consistently grown over the last few years, gaining 10.2 percent in the last year alone as 2019 saw a total tally of 386 863 units. Incidentally, that’s a massive 115 percent increase over the 179 854 units exported in 2006.

Based on relatively strong order books reported by most vehicle exporters, Naamsa expects the momentum to continue in 2020 and beyond, with the national manufacturer’s association predicting a slight increase to around 400 000 units in 2020.

Now imagine that could be combined with increasing domestic sales?

If there’s one common statement that we hear practically every time an economist speaks about the country’s economic and socio-political challenges, it’s that South Africa has a great deal of potential. Nobody’s ever denied that

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Written by Mathew

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