Will you buy a new car in 2017?

New vehicle sales is expected to remain under pressure in 2017, after dropping 11% in the year to date.

Sales growth first turned negative in 2014, but the declining sales trend has accelerated this year as economic growth and consumer confidence came under pressure and a weaker rand resulted in double-digit percentage price increases.

While sales to rental companies bucked the trend and increased 14.1% year-on-year in the year to date, dealer sales decreased 10.8% to 375 732 vehicles while sales to government dropped a staggering 56.3% to 10 930 vehicles.

Neale Hill, director for marketing, sales and service in Southern and Sub-Saharan Africa at Ford Motor Company of Southern Africa, says the delays in government’s RT57 tender meant the traditional third and fourth quarter activity from the government sector didn’t materialise.

The only passenger car segment to experience sales growth in the year-to-date has been the mini utility vehicle segment which expanded 6.4%.

Jeff Nemeth, president and CEO of Ford’s Sub-Saharan Africa region, expects the market to be flat next year with a possibility of 1% to 2% new vehicle sales growth.

After the rand came under significant pressure towards the beginning of 2016, it is expected to be fairly stable in 2017 and may even be somewhat stronger, which should make imported products like vehicles more affordable, he says.

If inflation stays within the Reserve Bank’s target range of 3% to 6%, interest rates are not expected to increase any further.

Nemeth says lending institutions continue to implement progressive financing plans, which allow consumers to pay lower monthly payments.

The South African market is effectively split into two markets – a mature one, where up to 90% of demand is driven by replacement, and an emerging market, where demand is primarily driven by the emergence of the black middle class.

Against the current economic background, the used car market has been fairly robust and finance institutions now receive roughly 2.5 applications for used vehicle finance for every one new vehicle finance application. During good market conditions the ratio is usually 1:1.

Nemeth says there is a very robust market for used cars and dealers continue to put structures in place to sell used cars. While that may result in a slight decline on the emerging side, he expects a slight sales increase on the mature side of the market.

Jason Muscat, senior industry analyst at FNB, says their econometric model, which predicted a contraction of 12% in new vehicle sales growth this year, is forecasting a year-on-year contraction of 5% for 2017.

He cautions however that a lot of factors are at play and that issues such as a downgrade, tax hikes and export performance could impact the figure.

While he considers a 5% contraction a worst-case scenario, a best-case scenario in all likelihood will be a flat market.

He echoes Nemeth’s sentiments around a potentially more stable currency and that it could help to bring inflation back within the target range. Food inflation is also expected to slow as drought conditions improve.

“The problem is it [consumer price inflation] is going to remain relatively close to the upper end of that [3% to] 6% band and that means there is very little scope in our view for rates decreases and that is something that certainly the vehicle industry would benefit tremendously from.”

While he expects household disposable income to remain under pressure, some deleveraging in household balance sheets – however mild – should provide some breathing space.

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