New vehicle sales start 2015 on a mixed note with short to medium term prospects increasingly positive

 

1. BRIEF COMMENT ON DECEMBER, 2014 SALES

New vehicle sales ended 2014 on a strong note with aggregate Industry new vehicle sales at 51 461 units recording an improvement of 4 979 vehicles or a gain of 10.7% compared to the total new vehicle sales of 46 482 units during the corresponding month of December, 2013.  The December, 2014 new passenger car market and light commercial vehicle market reflected a year on year volume improvement of 9.3% and 14.7% respectively.  Sales of extra heavy commercial vehicles rose by 29.9% year on year.  Export sales had recorded a marginal decline in December, 2014 and at 21 833 units reflected a fall of 357 vehicles or 1.6 % compared to the 22 190 vehicles exported during December, 2013.

 

2. COMMENT ON 2014 NEW VEHICLE SALES AND VEHICLE EXPORTS:  A CHALLENGING YEAR WITH SIGNS OF CONSOLIDATION

Following four successive years of growth in new vehicle sales (2010 – 2013) – 2014 new vehicle sales in South Africa recorded a slight year on year decline.  The slowdown in the economy, two interest rate increases and above new vehicle average price inflation contributed to a fall in domestic sales volumes of 0.7% for the year.  In the event, the marginal decline in aggregate sales during 2014 of 0.7 % in volume terms compares to annual growth in total sales of 24.7 % year on year in 2010, 16.1% in 2011, 10.2% in 2012 and 2.9% in 2013.

Aggregate annual industry sales by sector, over the past six years, were as follows –

 

Sector	2009	2010	2011	2012	2013	2014	2014 / 2013% Change
Cars	258 129	337 130	396 292	442 604	450 296	439 179	-2.5%
Light Commercials	118 159	133 756	149 301	160 174	167 996	173 790	+3.4%
Medium Commercials	7 229	7 557	9 218	10 104	11 584	11 021	-4.9%
Heavy, Extra Heavy Commercials, Buses	11 705	14 464	17 438	17 737	19 340	20 533	+6.2%
Total Vehicles	395 222	492 907	572 249	630 619	649 216	644 523	-0.7%

(From 2012 onwards, sales for GWM were included)

On balance, 2014 turned out to be a difficult year for the South African automotive industry with domestic new vehicle sales under pressure, particularly at dealer level, despite attractive incentives and a strong contribution by the car rental sector which accounted for an estimated 14.0% of new car sales during the year.  Sales of heavy and extra heavy commercial vehicles performed relatively well and recorded noteworthy year on year gains.  Industry trading conditions remained intensely competitive with over 60 brands and about 2 962 model derivatives, in the new car and light commercial vehicle sectors, competing for consumers’ franchise.  Preliminary estimates indicate that motor industry new vehicle related sales turnover had grown by about 9.0%, based on sales volumes and a weighted average estimated increase of about 10.0% in new vehicle prices, during 2013 to reach about R224 billion for the year.  Industry new vehicle export sales were estimated to have added a further R65 billion to total Industry 2014 revenue.

Export sales had been negatively affected by a four week strike in the metal and engineering industry during the middle of 2014 with an estimated net loss of 16 000 vehicles and, as a result, aggregate 2014 total vehicle exports at 276 874 units were only slightly up on the 276 404 vehicles exported in 2013.

2014 vehicle exports still represented the third highest annual Industry export figure on record.

2014 Industry export sales data, compared to the previous five years, were as follows –

 

	2009	2010	2011	2012	2013	2014	2014 / 2013% Change
Cars	128 602	181 654	187 529	153 268	153 545	156 569	+2.0%
Light Commercials	45 514	56 950	84 125	123 648	121 653	118 894	-2.3%
Trucks & Buses	831	861	803	1 076	1 206	1 411	+17.0%
Total Exports	174 947	239 465	272 457	277 992	276 404	276 874	+0.2%

 

 

Assuming further modest improvement in the global economy – industry export sales during 2015 could improve by some 50 000 vehicles or about 17.0 % over 2014.  Total Industry exports were projected to reach about 325 000 units during 2015 increasing further to about 375 000 units in 2016.

 

3. INDUSTRY PROSPECTS FOR 2015: CONTINUED DIFFICULT DOMESTIC NEW VEHICLE TRADING ENVIRONMENT BUT PROJECTED GROWTH IN VEHICLE EXPORTS

 

The outlook for 2015 remains uninspiring with the best case scenario, at this stage, one of marginal volume growth in domestic sales.  NAAMSA projections are based on expectations of an improvement in South Africa’s economic growth rate to between 2.0% and 2.5% in 2015, relative stability in automotive industry industrial relations, stable interest rates and credit ratings as well as prospects for moderating consumer price inflation.

These expected positive factors will be offset to some extent by higher than inflation new vehicle price increases as a result of the weakness in the Rand for most of 2013 and during 2014 against major international currencies.  The depreciation in the exchange rate resulted in significant cost pressures in respect of imported content, used in the production of locally manufactured vehicles, and more particularly, in the case of imported built up vehicles.

Provided the expectations materialised, aggregate new vehicle sales volume growth during 2015 could improve by around 4.0%.  This would represent a commendable performance in relation to the fairly high sales base established over the past few years.  Furthermore, demand by the car rental industry was expected to remain strong during 2015 and should continue to make a positive contribution on the back of further growth in tourism and business travel.

Internationally and domestically, vehicle manufacturers would continue to focus on new models and products through sustained investment in new technologies.  In South Africa, the industry continued to view the need for more environmentally friendly fuels and vehicles as important.

The outlook for 2015 in terms of Industry domestic vehicle sales by sector is reflected in the table hereunder –

 

Sector	2009	2010	2011	2012	2013	2014	2015 Projected
Cars	258 129	337 130	396 292	442 604	450 296	439 179	452 500
Light Commercials	118 159	133 756	149 301	160 174	167 996	173 790	181 000
Medium Commercials	7 229	7 557	9 218	10 104	11 584	11 021	11 500
Heavy, Extra Heavy, Commercial Buses	11 705	14 464	17 438	17 737	19 340	20 533	21 500
Total Vehicles	395 222	492 907	572 249	630 619	649 216	644 523	666 500

 

At this stage, 2015 projections reflect modest domestic sales volume growth.

 

Industry vehicle exports would remain a function of the performance and direction of global markets.  Signs were emerging of a modest improvement in the global economy led by a recovery in vehicle sales in the United States and continued growth in Asia.  Demand for light commercial vehicles in African markets were also expected to show above average growth and these trends were expected to support 2015 Industry export sales.

Factoring in the expected improvement in exports, domestic production of motor vehicles in South Africa during 2015 was expected to rise from the approximately 542 000 vehicles produced in 2014 to close on 600 000 vehicles in 2015 – an improvement in vehicle production of about 10.7%.

The projected higher levels of vehicle production are consistent with the official vision for the Industry which is to remain a premier supplier of high quality, competitive automotive original equipment parts and accessories and vehicles to international markets and, in the process, to achieve an annual domestic vehicle production figure of close to 1 million vehicles by 2020.  One of the imperatives for the successful realisation of the objective of new vehicle production in South Africa in excess of 1 million units per annum – was industrial relations stability and close cooperation between employers and unions to improve productivity and overall efficiencies.

A development which has not received much publicity and which could result in pre-emptive buying during the first two months of 2015 relates to a proposed change by the fiscus to the basis of fringe benefit taxation of company cars.  The planned legislative change provides that, instead of basing the taxable value of the private use of a company car on the cost to the employer, the taxable value will be based on the retail market value of a list price of a vehicle acquired after 1^st March, 2015.  Whilst there will be no impact on current company cars, vehicles acquired and used by employees for private purposes from 1^st March, 2015 onwards will be affected.  Since the retail market value or list price of vehicles will invariably be higher than the cost of acquisition of the product, companies are likely to purchase new company cars in advance of the tax change.

Overall, 2015 is likely to represent another challenging year for the SA automotive industry.

Best wishes for 2015 to subscribers, the media and automotive Industry Stakeholders.

[NAAMSA]

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