Industry News
| by Stephen Matthews
The Canary in the Cage
General Manager of the motor division of WesBank Cyril Zhungu once again delivered his quarterly Confidence
Indicator report for 2014 Q2 in Sandton in July, and the analysis reveals a broadly weakening consumer
environment.
B
ut the drop off is off a high
enough base to not unduly worry
dealers, who at 5,5 (out of 10)
are marginally down on Q1 confidence
figure of 5,5.
Sales growth for the year is revised
downwards from -2% in Q1 to
between -3 to -5%, with a flattening out
of the curve only expected sometime in
2015.
Car sales are the canary in the cage
when it comes to gauging the strength
of an economy, being highly volatile
and a lead indicator, to the extent that
the GDP curve actually lags car sales
figures.
USED CARS
The major shift seen is an increasing
movement to the used car market which
is still enjoying almost negative inflation,
as new car prices rise steadily with a
weakening rand.
This shift is quite marked and the ratio
of new to used car sales is now trending
towards 1:1,5 from a fairly even 1;1,1 in
2013 Q4.
Customers are definitely seeking price
and value, said Zhungu.
The industry is expected to respond
to the gradual slump with supply side
stimulation in the form of new models,
and the relatively low interest rate
environment is further seen as a buffer
to further decline.
So, now is the time to buy a used car
people, before the gap between new and
used prices closes again as the pattern
shifts again towards the centre.
Zhungu indicated that figure for Q4
were presented prior to news just in
of stopped production and reduced
production at General Motors and BMW
(by a third) respectively.
DEGEARING
Biggest drop is in the passenger sales
market, expectedly. The consumer has
run out of runway, so to speak as far
as appetite for further indebtedness,
Zhungu confirmed, and is “degearing at
present”.
The report also revealed that the recent
credit amnesty means that banks
have eliminated risky customers, with
consumers earning under R9000 per
month now falling out of the car buying
graph entirely, and heading into the
unsecured lending market.
While household debt is down from
its high in 2009 of 83% of disposable
income, the downward trend is sluggish
and sits at 74%, further indicating the
pressure on the consumer.
WESBANK SOLID
Despite this, increase in monthly
applications at WesBank year on year
is at a solid 20%, indicating a steady,
though declining, rate of demand off the
high base indicated earlier.
| words in action
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august 2014
To accommodate this average contract
period has risen from 56 months in 2007
to 68 months presently, and so consumers
are merely extending the debt period in a
still relatively benign interest rate period.
So we are indebted to the hilt but are still
buying cars. Who’d figure? Not like cars
are not a necessity in South Africa.
Average deal duration has likewise moved
up from a fairly low 27 months in 2007 to
36 months presently and is trending higher.
Fuel as a percentage of total mobility
spend for a car owner is now at 37% up
from around 27% in 2007, adding further
pressure.
ECONOMY
Of course the biggest drag on future car
sales is the economy itself and Zhungu
indicated at the end of his briefing that
GDP growth, at a current -0,6% would
be the biggest factor for future growth
planning.
And that ladies and gentlemen leaves us
of course with the bigger macro issues
of sluggish growth, stubborn inflation,
a weakening rand and poor business
sentiment. The canary is certainly singing,
even if we are not in mortal danger yet.
And what is it saying? Our guess is strikes,
BEE blowback, cadre deployment, policy
uncertainty, red tape and a failure to
develop small business.
But is the mine boss listening?