New vehicle sales growth to slow to 8% this year – Naamsa

The rate of increase in new vehicle sales is expected to decline to about 8% in 2022.

This follows the strong 22.1% year-on-year rebound in sales in 2021, following the massive 29.2% Covid-19 pandemic-related decline in sales in 2020.

Read: New vehicle sales in 2021 exceed expectations

Total new vehicle sales increased to 464 122 units in 2021 from the 380 206 units sold in 2020.

In 2019, the year prior to the Covid-19 pandemic, a total of 536 612 new vehicles were sold.

Mikel Mabasa, CEO of automotive business council Naamsa, said the improvement in the new vehicle market is expected to continue at a slower pace in 2022, in line with the lower projected GDP growth rate for the country.

Mabasa said a sustained higher domestic economic growth rate is essential to support higher domestic new vehicle sales volumes.

“However, with a GDP growth rate forecast of a moderate 1.8% in 2022, the new vehicle market is expected to continue its gradual recovery during the year, but at a slower pace.

“At this stage, a year-on-year improvement of around 8% in aggregate new vehicle sales volumes is projected for 2022,” he said.

The less optimistic view

However, economists are less optimistic about the new vehicle sales prospects for 2022.

Economist Mike Schüssler is doubtful the industry can achieve 8% year-on-year growth in sales in 2022, despite stressing that Naamsa’s forecast is not unrealistic.

Schüssler believes the growth in new vehicle sales in 2022 will be closer to 5%.

Schüssler’s more pessimistic view is based on interest rates increasing “albeit only slightly”, which will affect new vehicle affordability; the extraordinarily high fuel prices; and his belief that consumers will partly shift their consumption expenditure away from vehicles.

He also does not believe the semiconductor shortage will be resolved this year, leading to a continuation of the shortage of certain vehicle models.

Read: Chip crunch will last through 2022, Toyota supplier warns

Schüssler said the Covid-19 pandemic “is still lurking and there will be jitters every now and then” but doubts South Africa will have another full lockdown.

“So it definitely will not be 2020 sales, it will be 2021 sales ‘plus’. I do think the industry will get [sales] growth but I think it will be closer to 5% or so, which will still be a very good year.

“I do believe we have a car market that is coming back but I think the big bounce has happened and the market now has to manoeuvre its way forward,” he said.

Slightly negative growth possible

Azar Jammine, chief economist at Econometrix, told Moneyweb in December he anticipates very low positive growth in new vehicle sales in 2022, and possibly even slightly negative growth.

Factors influencing this forecast include the tailing off of commodity prices on expectations of a slowdown in the global economy, which is being driven by the appearance of new Covid-19 variants and some countries having to reinstate lockdown restrictions, which will interfere with normal economic activity and growth.

Jammine said the International Monetary Fund (IMF) is looking at 2.2% GDP growth for South Africa in 2022 while other organisations are forecasting growth of less than 2%.

He said growth in vehicle sales follows the change in the rate of growth in the economy, which means there is likely to be barely positive growth in vehicle sales in 2022.

Long way to go …

Naamsa’s 8% forecast means that the industry will likely not get back to pre-Covid-19 sales levels this year.

Schüssler said average monthly sales in the new vehicle market, based on a six months moving average, have for the last 16 years been at 46 000 units – but the market is currently at 38 000 units.

“That says to me the market is still below par. I think there will be some improvement but even a 10% increase in sales doesn’t get us back to where we were,” he said.

Schüssler said new vehicle sales will have to increase by more than 20% this year to get back to pre-Covid-19 levels.

Jammine said new vehicle sales slumped by 29.2% in 2020 and mathematically the market would need to grow by 43% to get back to where it was in 2019.

Mabasa said the new vehicle market’s performance was aligned with the country’s projected GDP growth rate of around 5% for 2021.

Raft of challenges

He said it was a very satisfying performance by an industry that had to deal with numerous challenges over the course of 2021, ranging from global supply chain disruptions, insufficient model availability, persistent load shedding, escalating logistics cost, as well as several domestic shocks.

Mabasa added that renewed activity in the vehicle rental industry, which is a major seasonal contributor to the new vehicle market, supported passenger car sales during the second half of 2021 as the country’s economy started to open up to overseas visitors.

“Overall, market conditions in the new passenger car and light commercial vehicle market continued to be characterised by a buying-down trend, with sales of pre-owned vehicles offering the most enticing option during the year.”

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Mabasa said sales of medium and heavy commercial vehicles “also reflected signs of resilience”, with the sales performance mirroring “the improved macro-economic climate in the country”.

Resilience … and risks

Nedbank’s group economic unit said the new vehicle market remained quite resilient in 2021, weathering a multitude of challenges throughout the year.

“Overall, it was a year of recovery, which is expected to continue into 2022. On the domestic front, GDP growth of around 1.8% will support new vehicle sales, but a much higher and sustained economic growth will be required to move sales to a higher plane altogether,” it said.

Nedbank said the threat of the coronavirus, load shedding and unemployment remains the most significant downside risks to the rebound in sales.

It said the obstacles presented by supply chain issues, high logistical costs and the semiconductor shortage are expected to persist, but the extent of the impact will depend on the highly uncertain trajectory of the virus across the globe.

“A glimmer of hope, specifically to export volumes, includes the introduction of new model introductions as well as a robust global recovery,” it added.

Exports

Vehicle exports grew by 8.8% to 295 268 units in 2021 from the 271 288 vehicles exported in 2020.

Mabasa said vehicle exports for the first half of 2021 were still on par with the record pre-Covid-19 vehicle export performance of 2019, but the civil unrest in Gauteng and KwaZulu-Natal together with the force majeure declared by Transnet after the cyber-attack during July 2021 left a major scar on the country’s economy.

He said the upward momentum in vehicle exports consequently ground to a halt as the knock-on effects of the economic disruptions along with the global shortage of semiconductors, which also impacted on domestic vehicle production, were visible in the industry’s export performance and the five consecutive months of decline up to November 2021.

Mabasa said factoring in the expected year-on-year improvement in vehicle exports of around 15%, an improvement in industry vehicle production of about 17% is projected for 2022.

Naamsa highlighted that the automotive industry is not only the largest manufacturing sector in the South African economy but also invests billions of rand every year and represents about 460 000 highly skilled, direct jobs in its formal sector supply chain.

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Source: moneyweb.co.za