New vehicle market defied slowdown in 2022 but what about 2023?

South Africa’s new vehicle market defied the slowdown in economic growth to record higher than forecast annual year-on-year growth of 13.9% in 2022, according to statistics released by automotive business council Naamsa on Monday.

However, industry players have warned that the sales outlook for this year may not be as promising.

The council reported that aggregate new vehicle sales increased 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 new vehicle sales registered year-on-year growth for 12 consecutive months in December 2022.

SA’s vehicle market growth

Mabasa said the double-digit growth in sales in 2022 follows the 22.2% growth in sales to 464 493 units in 2021 compared to the 380 206 units in 2020 following the pandemic.

“The new vehicle market’s performance in 2022 remained resilient despite the multiple national and international headwinds,” he said.

Headwinds

The headwinds included global supply chain disruptions caused by the Covid-19 pandemic, Russia’s invasion of Ukraine, the impact of the devastating floods in KwaZulu-Natal, elevated inflation, an upward trend in interest rates, record fuel prices, and record highs in the frequency and intensity of load shedding, which weighed heavily on both business and consumer confidence.

“Despite the myriad of negative economic pressures and ongoing stock supply shortages, the new vehicle market continued to outperform expectations in 2022,” said Mabasa.

“However, the consumer trend of buying less expensive and smaller cars, usually SUVs [sport utility vehicles] or crossovers, continued in 2022.”

Double-digit growth

Econometrix chief economist Azar Jammine said the fact the new vehicle market had recorded double-digit growth in 2022 was “way in excess of the low single-digit growth expected a year ago”.

However, Jammine cautioned that the growth in unit sales has probably not been matched by revenue growth because of the shift to lower-priced entry-level vehicles from the more expensive luxury segments.

He said this shift distorted the new vehicle sales numbers in unit terms.

Jammine believes that part of this shift has been driven by preemptive buying, with people expecting vehicle prices to increase faster than they have in the wake of the depreciation of the rand against the dollar without recognising that the rand has only very recently depreciated against currencies other than the dollar.

He added that although interest rates have risen, they are not that high by historical standards.

Strong value offering

National Automobile Dealers’ Association (Nada) chairperson Mark Dommisse agreed that the volume of new vehicle sales was a lot stronger than anyone expected, especially in the last few of months of 2022.

However, he believes new vehicle sales are being driven by the strong value offering in the R300 000 to R450 000 small SUV segment and the still reasonably low interest rates.

“If you look at the peach segment, it is certainly in that small SUV segment. All the players [manufacturers] are going into that SUV segment. If I was buying a car today, I’d certainly be hunting there first,” he said.

Nada director Gary McCraw said it is amazing that the continuing growth in new vehicle sales was achieved in a year when Toyota lost about 70 000 units of local production because of the disastrous floods in KwaZulu-Natal that put its plant out of action for four months.

Figures released on Monday revealed that new car sales grew by 19.3% year-on-year to 363 092 units in 2022 from 304 341 units in 2021 while light commercial vehicle (LCVs) sales increased by 2% to 135 666 units from 133 077 units.

Jammine believes “some substitution effect” caused the underperformance of LCVs relative to passenger vehicles.

But he is unsure how much of the performance difference between these two segments had been caused by supply issues, resulting in consumers opting to purchase cars instead of LCVs.

Commercial vehicles sales

Sales of medium commercial vehicles increased by 11.3% year-on-year to 8 370 units in 2022 while heavy truck and bus sales improved by 11.7% to 21 835 units.

Despite the disruption to production at the Toyota South Africa Motors plant caused by the floods, vehicle exports grew by 17.9% to 352 450 units in 2022 from the 298 020 units exported in 2021.

Naamsa believes the new vehicle market will remain resilient in 2023 despite weakening domestic economic indicators and a deteriorating global growth outlook.

However, Mabasa said GDP growth in South Africa continues to be adjusted downwards and is now expected to be at 1.1% for 2023.

“In view of the close correlation between new vehicle sales and the country’s GDP growth rate, single-digit growth in new vehicle sales could be expected for 2023 as the market returns to pre-pandemic levels in sales and exports,” said Mabasa.

Jammine is anticipating very low new vehicle sales growth in 2023 – between zero and 5% and possibly even negative growth – because of the sharp rise in interest rates and the fact that global economic conditions have already started to slow, which will impact negatively on overall economic activity.

“South Africa is not immune from that, and it will affect export markets more than the domestic market but the domestic market will feel the headwinds as well,” he said.

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Vehicle sales trends

Jammine added that new vehicle sales trends are related not to the actual growth rate of the economy but the rate of change in the growth of the economy, and Econometrix’s economic growth forecast for South Africa in 2023 “is well below 1% and with that we would see very low growth in vehicle sales”.

“The other big elephant in the room is load shedding and the manner in which it is likely to depress domestic economic activity and have a knock-on effect down the line on economic growth and employment creation, which in turn helps to drive vehicle sales,” he said.

Nada expects continued growth in the new vehicle market in 2023 but possibly not at the rate previously anticipated.

McCraw said many of the factors that hobbled the motor industry in 2022 will unfortunately still be encountered in 2023.

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This article first appeared on Moneyweb and was republished with permission. Read the original article here.

Roy Cokayne has been a financial journalist for 34 years, focusing largely on the automotive, construction and property sectors. He is fascinated and passionate about life, living, the truth and justice.