Strikes dent new vehicle sales

Industrial action, which shut down South Africa's vehicle production lines, dramatically slowed down growth in new vehicle sales in September, leading to a shortage of cars in showrooms and hurting export sales, economists said.
Strikes dent new vehicle sales

Jeffrey Schultz said new vehicle sales slowed "considerably" in September, owing to the negative effects of the strike action that hit the domestic automotive industry over the past two months.

The National Association of Automobile Manufacturers of South Africa (NAAMSA) reported in its latest monthly data that the aggregate new vehicle sales rose to 16.6% year on year in September, down sharply from 36.9% during the previous month of August 2010.

Total new vehicle sales dropped by 9.5% month on month in September, off the higher base established in August, with both passenger and commercial sales recording sharp declines, Nedbank said in its commentary.

Still buoyant

Standard Bank economist Shireen Darmalingam said the industrial actions led to the shortage of new cars, as vehicle manufacturing plants were disrupted.

In September, the 14-day strike in the motor industry cut the supply of components to vehicle manufacturers, while an eight-day industry action hit carmakers in August.

Despite the strike effect and the introduction of the carbon emissions tax in September, Darmalingam said one should not lose sight of the fact that the vehicle market is still "exceptionally buoyant" and has made significant gains since having coming out of the recession.

Darmalingam said in spite of the headwinds facing the market, September managed to record the second highest selling rate per day of new passenger cars in 2010, supported by the strong demand from rental car companies.

Increased pace of household demand necessary

Concurring, Schultz said the latest vehicle sales figures could reflect a "normalisation" in sales growth after the August pre-emptive buying surge - as consumers rushed to buy cars before the CO2 tax was implemented last month.

Darmalingam said the market could still see growth of around 22%-25% this year. "However, for this to materialise, the final quarter of the year needs to reflect an increased pace of household demand," she said.

The last quarter of the year typically experiences slowdown in vehicle sales as consumers delay buying into the new year.

Economic indicators at this stage reflect a continued acceleration in the vehicle market through to year end, Darmalingam said.

"However, as is typically the case, sales in the final months of the year are stalled as consumers delay purchases into the new year.

"Nonetheless, we believe that the low interest rate and inflation environment will provide significant impetus to sustain relatively strong sales in the remaining months of the year," Darmalingam said.

CO2 tax could drive earlier purchases

Schultz said he expected consumers to purchase double cabs before the imposition of the CO2 tax, which is to be implemented on this class on 1 March 2011.

"We could expect further pre-emptive buying activity in this segment of the market in the coming months," he said.

"Furthermore, as many vehicle retailers attempt to play catch-up following the significant strike action in August/September, this could also provide some support to sales in the final quarter of the year."

"Our expectation for household real income levels to continue to rise and for debt servicing costs to remain at their current low levels for an extended period should remain supportive of continued robust sales growth in the passenger sector in the medium term, in our view," Schultz said.

As for export sales, Nedbank said it expected these sales to remain weak in the months ahead as some of the major economies struggle to sustain the momentum of the recovery, while the persistent strength of the rand could also weigh on competitiveness.

Source: I-Net Bridge

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