Exports up but 2016 ends on dismal note for new vehicle sales and 2017 not expected to be much better

Industry domestic sales ended 2016 on a weak note with aggregate industry new vehicle sales for December 2016 at 41 639 units recording a decline of 7 519 vehicles or a fall of 15.3% compared to the total new vehicle sales of 49 158 units during the corresponding month of December 2015 the National Association of Automobile Manufacturers of SA (NAAMSA) said.

Brian Joss – The December, 2016 new passenger car market and light commercial vehicle market reflected a year on year volume change of -14.0% in the case of cars and -17.8% in the case of light commercial vehicles.  Sales of medium and heavy commercial vehicles declined by 18.2% year on year. 

In contrast, export sales had recorded an improvement in December 2016 and at 18 668 units reflected a gain of 1 222 vehicles or 7.0% compared to the 17 446 vehicles exported during December  2015, Naamsa said..

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For the third year in succession, new vehicle sales during 2016 in South Africa recorded a year on year decline.  The slowdown in the domestic economy, above average new vehicle inflationary pressures, increases in interest rates, pressure on consumers’ and household disposable income and low levels of consumer confidence had contributed to a double digit decline in annual domestic sales volumes.  In the event, aggregate sales during 2016 fell by 11.4% in volume terms to 547 442 units compared to the sales total of 617 648 in 2015. 

“Overall, 2016 turned out to be another extremely difficult year for the South African automotive industry with domestic new vehicle sales progressively under pressure, particularly at dealer level, despite attractive sales incentives and a strong contribution by the car rental sector which accounted for an estimated 16.3% of new car sales during the year.  Industry trading conditions had remained intensely competitive characterized by pressure on dealer margins.  Preliminary estimates of 2016 motor industry new vehicle related sales turnover indicated a decline of about 2.0%, taking account of sales volumes, changes in mix and a weighted average estimated increase of about 14.0% in new vehicle prices – to reach about R233 billion for the year.  Industry new vehicle export sales were estimated to have added a further R105 billion to total Industry 2016 revenue,” said Naamsa.

Vehicle exports in 2016 represented the highest annual Industry export figure on record and total vehicle exports at 344 822 units were up on the 333 847 vehicles exported in 2015. 

Assuming further improvement in the global economy – industry export sales during 2017 could improve by some 30 000 vehicles or about 10.0% to reach a conservative projection of 375 000 export units. 

In summary, the decline in domestic sales was offset to a limited extent by continued growth in vehicle exports which in turn assisted in sustaining utilisation capacities and employment levels of vehicle manufacturers. 

2017 is expected to be another difficult year for the domestic SA auto industry, however, a modest improvement in new vehicle sales is expected during the second half of 2017.  Industry production levels, on the back of expected further growth in vehicle exports, should however remain in an upward phase. 

At this juncture, 2017 projections for South Africa reflect an expected improvement in GDP growth to around 1.5% (from 0.4% in 2016), in gross domestic expenditure to over 2.0% (from -0.3% in 2016), in growth in private consumption expenditure to about 2.0% (from 0.8% in 2016) and in fixed investment to around 2.2% (from -2.5% in 2016).  Improvement in growth prospects is premised on the easing in drought conditions, the improvement in commodity prices, a decline in inflationary pressures on the back of a stronger Rand as well as recent improvements in the Purchasing Managers’ indexes and the Reserve Bank’s leading indicator.  On the negative side, domestically, elevated political tensions are likely to continue to weigh on business confidence and the expected increase in taxes in this years’ budget will erode real purchasing power. 

Internationally, volatile and uncertain conditions are likely to prevail during 2017.  Elevated geo-political tensions and political uncertainty in major advanced economies associated with elections could heighten global risk aversion and trigger confidence shocks.  Despite these considerations, the global economic outlook at this stage, remains positive and should continue to lend support to South Africa’s improving vehicle export performance.  Ultimately, industry vehicle exports would remain a function of the performance and direction of global markets.  Vehicle exports to Europe, Australasia, the United States, Asia and South America were expected to show further upward momentum. 

The general expectation in the industry was that domestic new vehicle sales would remain fairly flat going into 2017.  NAAMSA remained hopeful, however, that on the back of the expected improvement in key economic indicators, domestic sales would regain some traction in the second half of 2017 with year over year growth perhaps settling in the 2.5% to 3.5% range and hold to around that level going forward. 

Factoring in the expected improvement in exports, domestic production of motor vehicles in South Africa was expected to show an increase from 604 000 vehicles produced in 2016 to close on 641 000 vehicles in 2017 – an improvement in vehicle production of about 6.0%  This figure could prove conservative if vehicle exports expand more than currently anticipated.

The projected higher vehicle production was consistent with the official vision for the Industry which is to remain a premier supplier of high quality, competitive automotive original equipment parts and accessories and vehicles to international markets and, in the process, to achieve an annual domestic vehicle production figure of close to 850 000 vehicles by 2020. 

Internationally and domestically, vehicle manufacturers would continue to focus on new models and products through sustained investment and new technologies.  Technologies such as artificial intelligence could begin to reflect a tangible impact across sectors.  Autonomous vehicles and driver assisted automatic systems as well as increased use of information technology in vehicles were likely to feature in the future.

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