August vehicle sales in South Africa showed a 4,9% decrease compared to the same month last year – a drop that comes at a critical time for the automotive sector.
“This decline is disappointing, especially considering the July sales results and improving consumer sentiment in the country,” says Brandon Cohen, national chairperson of the National Automobile Dealers Association (NADA).
Despite the overall downturn, Cohen points out that some segments performed well.
“There were positive trends in the market with passenger car sales up 3,1% and medium truck sales rising by 8,1% compared to August 2023,” he says. However, he also acknowledges that the light commercial vehicle segment took the biggest hit – declining by 21,5% – which reflects a possible lack of confidence in the business sector of the economy. Heavy truck and bus sales were also 11,4% lower than in the same month last year for similar reasons.
Rental companies remained active buyers contributing 12,4% of total sales and 16,7% of car sales, while retail dealer channels accounted for 81,5% of total sales. However, Cohen described the export performance as “very disappointing” with built-up vehicle exports from South Africa down more than 30% for the second consecutive month.
Looking ahead, Cohen expressed optimism about the potential for an interest rate cut to stimulate the market.
“A reduction in interest rates could significantly benefit the South African retail motor industry and the broader economy,” he says. With inflation falling to 4,6% in August and further improvements anticipated, he believes that “a rate cut seems imminent when the Reserve Bank’s Monetary Policy Committee meets later this month. We could take direction from the Federal Reserve in the US where the chairman has indicated that a rate cut is likely.”
Cohen notes that while interest rate changes typically take three to six months to impact consumer purchasing patterns, the current pent-up demand may lead to a quicker response in the local market.
He also comments on the introduction of the new two-pot retirement system which began this week: “It will be interesting to see how many people take advantage of the opportunity to access their savings within the prescribed limits. If the numbers are close to predictions, this could inject anywhere between R10-billion and more than R100-billion into the economy.”
He acknowledges that while this could have a significant short-term impact by increasing spending or debt repayment, it could also have longer-term consequences.
“The two-pot system withdrawals might offer a temporary boost to the economy, but could be detrimental in terms of long-term worker security,” Cohen says.
He also praises the Government of National Unity (GNU) making strides in critical areas affecting the automotive industry. The rand has also shown strength recently, holding below R18/$1 which benefits consumers in terms of inflation and sentiment.
Finally, Cohen welcomes the nearly one rand per litre reduction in the September fuel price which he says would help reduce inflationary pressures in other areas.
“With the Brent crude price stabilising around $77 a barrel, sustained decreases in fuel prices will positively impact consumers’ wallets,” he says.