It comes as no surprise to learn that Naamsa reported a decline in vehicle sales for the month of June. With obstacles such as interest rate hikes and implementation of the National Credit Act, it was only a matter of time before the motor industry felt the repercussions.
By Kelly Lodewyks
Naamsa this week noted an overall decrease of 6 871 new vehicle sales on the South African market compared with June last year. Only 50 927 vehicles were sold last month, while June 2006 saw sales of 56 927 vehicles.
Comparing June 2006 with June 2007, there was a 19,1 per cent (7 276 units) difference in new cars sold between the two months. 38 115 new cars were sold during June last year, but only 30 839 units were sold in that segment of the South African market last month.
The decline in car sales was a result of a few issues. Brand Pretorius, chairman of McCarthy Motor Holdings, believes that the interest rate increases that have occurred five times in a short space of time recently, is only one of the reasons. "Sales were also adversely affected by recent new vehicle price increases, which put added pressure on vehicle affordability," said Pretorius.
Furthermore, inflation and the constant rise of fuel prices mean that household items as well as the cost of living become more expensive. Inflation, amplified by weaker rates of exchange, has prompted manufacturers and importers to hike new vehicle prices to cover extra expenses. With cash already limited, consumers have to tighten their belts before they can spend more money on cars.
Credit Act makes itself felt
The National Credit Act (NCA), however, seems to be the main cause. The purpose of this act is to curb South Africans from buying on credit. With the implementation of this act on June 1, consumers who have a lot of debt as a result of buying on credit will find it extremely difficult to purchase their own cars.
Dealerships now have to go to greater lengths to do credit checks on consumers in order to make sure that they can afford to buy a car, and anyone who supplies credit has to make sure that their customers are aware of the risks. The NCA has made it more difficult for consumers to buy a car because it is no longer fairly easy to obtain a loan.
As an alternative to regular car finance contracts, consumers can now lease a car from a bank or another financial institution without taking ownership of it, which cuts out the 10 per cent deposit required when one finances a car in the conventional way. Although the deposit payment is avoided, the rate of interest charged will be higher.
However, while the passenger vehicle segment of the industry has seen a decline in sales, sales for the light commercial vehicles, bakkies and minibuses have shown a small improvement. 15 692 units were sold in June 2006, while 15 853 were sold in June 2007.
Other vehicle sales that have improved are medium and heavy truck sales. Naamsa reported a sales of 1 385 units and 1979 units respectively. According to the organisation’s media report, the improvement was due to the support by positive investment trends.
Manufacturers seemed to share the same view as that held in the Naamsa report – most reported that sales had dropped since last year, and that June saw the most drastic drop with the implementation of the NCA.
“Among other factors, the implementation of the National Credit Act led to a decrease in sales by 13,7 per cent (when compared to June) of 2006 and 6 per cent down on the May 2007 figures,” said Ford Motor Company of Southern Africa. “Ford Motor Company sales mirrored those of the industry as a whole, with a 5,6 per cent decline in sales month on month. The introduction of the NCA has not gone unnoticed, however we expect that moving forward the industry will begin to stabilise following an unpredictable second quarter. ”
Meanwhile, Pretorius said that although the NCA caused many problems for the car industry, things would be looking up soon.
"We believe… that the majority of the implementation problems with regard to NCA compliant documentation, systems, processes and credit scoring models, have now been sorted out,” said Pretorius “and the expectation is that the negative sales trend which manifested itself during June, will level out in July".
While the new car market has seen a decline in car sales, used car retailer Burchmore said sales in its market were on the up. According to Darryl Jacobson, managing director of Burchmore’s, the company has been able not only to survive these past few difficult months in the motor industry, but also increase sales. The main reason for that was apparently the good customer service.
Click here to download a summary of the latest new vehicle sales statistics as supplied by Naamsa.
Please note that because the sales figures supplied here have not yet been audited, CARtoday.com will not archive them. To access audited new vehicle sales figures for previous months, consult www.rgt.co.za.