The automotive industry in South Africa is now hoping that the looming interest rate cuts would signal a positive shift to stimulate economic activities after new vehicle sales fell by 4.9% in August compared to the same month last year, following a 1.5% uptick in July.
Data from the Automotive Business Council (Naamsa) yesterday showed that aggregate domestic new vehicle sales in August fell by 2 266 units, or 4.9%, to 43 588 units, down from the 45 854 vehicles sold in August 2023.
This decline comes at a critical time for the automotive sector as the industry expects consumer appetite to tick up towards the festive season.
Naamsa said the stronger July performance in the new vehicle market could not be sustained in August as consumers are still facing a myriad financial pressures.
“Encouragingly, however, the volume passenger car segment trended upward over the past two months. Although supported by seasonal sales to the vehicle rental industry, a 13-month-high rand exchange rate, a three-year low 4.6% consumer inflation rate, decreasing fuel prices, the potential ‘end to load shedding’ as well as definite prospects of lower interest rates on the cards before year-end all enhanced consumer sentiment during the month,” Naamsa said.
“There is recognition that with interest rates at a 15-year high, two potential rate cuts before the end of the year, reducing the cost of borrowing, would not materially improve vehicle affordability challenges and household debts over the short term, but it would signal a positive shift to stimulate economic activities.
“Since the downward slope in new vehicle sales commenced in August 2023, expectations remain that the new vehicle market will reflect an improved performance for the balance of the year due to the 2023 lower base-month effect comparisons.”
Meanwhile, Naamsa said export sales plunged by a significant 14 658 units, or 34.3%, to 28 073 units in August compared to the 42 731 vehicles exported during the same month last year.
“The downward slide in vehicle exports continued during the month in line with declining exports to Europe due to weak regional economic activity. However, eurozone inflation fell to 2.2% in August 2024, its lowest level in more than three years, thanks to falling energy costs, raising expectations of a further European Central Bank interest rate cut in September 2024,” Naamsa said.
“It should be noted that vehicle exports to the US reflected a substantial increase of 132.0% for the year to date compared to the corresponding period 2023. An easing of monetary policy in the industry’s main export markets bodes well in contributing to an improved performance for the balance of the year.”
Brandon Cohen, national chairperson of the National Automobile Dealers Association (NADA), described the export performance as “very disappointing”, with built-up vehicle exports from South Africa down more than 30% for the second consecutive month.
“This decline is disappointing, especially considering the July sales results and improving consumer sentiment in the country,” Cohen said.
However, Cohen expressed optimism about the potential for an interest rate cut to stimulate the market.
With inflation falling to 4.6% in August and further improvements anticipated, Cohen said a rate cut seemed imminent when the SA Reserve Bank’s monetary policy committee meets later this month.
Cohen also noted that while interest rate changes typically take three to six months to impact consumer purchasing patterns, the current pent-up demand may lead to a quicker response in the local market.
“A reduction in interest rates could significantly benefit the South African retail motor industry and the broader economy. We could take direction from the Federal Reserve in the US, where the chairman has indicated that a rate cut is likely,” Cohen said.
BUSINESS REPORT