The South African passenger car market could soon be on the upswing, but a turnaround in sales is not expected to relieve the ongoing problem of vehicle affordability, says economist Tony Twine.

The South African passenger car market could soon be on the upswing, but a turnaround in sales is not expected to relieve the ongoing problem of vehicle affordability, says economist Tony Twine.


Speaking at the launch of the Auto Africa 2004 event yesterday, the Econometrix economist said he expected the gentle decline in domestic passenger car sales since the start of last year to start bottoming out soon. This was against the backdrop of good economic prospects and the 1,5 per cent interest rate cut in particular last month.


Twine told that car sales could grow five per cent next year to about 240 000 "as the wealth effect of interest rate cuts starts taking effect". This would be up from a forecast 229 000 units this year, slightly lower than the 231 000 sold last year.


He said the broader effects of the June interest rate cut was expected to take effect only next year, because car sales were considered a barometer of economic activity.


As for this issue of vehicle affordability, Twine said car prices had increased out of kilter with household income over the past 17 years.


This became a problem during the first major weakening of the rand in the ‘Eighties. From 1985, the rate of vehicle sales growth had been lower than the rate of economic growth, he said.


It appeared, therefore, that high vehicle prices were not a cyclical phenomenon in the domestic market, but a long term trend. "Don't expect them to go away during the upswing," Twine said.


While Twine was positive about the domestic automotive sales going forward, he warned that high prices could again be an impediment to growth. US Federal Reserve chairman Alan Greenspan's downward revision of growth prospects in the US did not bode well for economic conditions in South Africa.


As was the case last year, the 2004 Auto Africa exhibition will be held in October at Nasrec. The event is the largest motor exhibition in Africa and showcases of the domestic automotive industry, which has a yearly turnover of about R128 billion including after-market sales.


Commenting on the Auto Africa exhibition, which attracted 200 000 visitors last year, automotive manufacturers association chairman and BMW head Ian Robertson said the show was an internationally recognised event, on a par with the biggest motor shows in the world. The industry would invest about R50-million in the show next year.