Toyota dismisses suggestions of above-inflation price increases

Toyota South Africa Motors (TSAM) has dismissed suggestions that new vehicle price increases will significantly exceed consumer inflation in the next few months because of the steep depreciation of the rand against the dollar.

President and CEO of TSAM Andrew Kirby said on Tuesday that from a total industry perspective, Toyota believes there will probably be moderate consumer price index (CPI) related increases.

Kirby said South Africa is fortunate that inflation has for the second consecutive month started to decline and the exchange rate can improve.

His comments follow Combined Motor Holdings (CMH) CEO Jebb McIntosh stating during an interim financial results presentation last week that new vehicle prices are expected to increase by up to 10% within the next four months.

Read: New cars to cost up to 10% more within months – CMH

“We will probably get increases of 2% to 3% almost every month and this knock-on effect is directly because of the exchange rate. The increases have already started,” said McIntosh, adding that the rand had depreciated from R15 to R18 to the dollar, a 20% movement.

Multiple cost drivers

Speaking at SA Auto Week, the industry’s inaugural premium networking and thought leadership conference at Kyalami Grand Prix Circuit and International Convention Centre, Kirby said he would comment on behalf of Toyota and not as an office bearer of automotive business council Naamsa because the association is prohibited from talking about pricing.

Kirby said a number of input drivers are impacting the price of imported and locally manufactured vehicles – the obvious one being exchange rates.

“Everybody is talking about it and yet we have taken a view that we are not going [to] price for the current exchange rate.

“The industry certainly hasn’t priced for the exchange rate because there is an understanding that it will recover in the next six months,” he said.

Kirby added that there is always a risk in making short term adjustments and TSAM tries to take a long term view.

He said shipping costs are another driver, while changes in commodity prices have affected not just the cost of local manufacturing but also imported vehicles.

However, Kirby stressed that new vehicle pricing in SA has “by and large” been below CPI inflation.

TransUnion reported in August that the rate of change in new vehicle prices declined to 3.9% in the second quarter from 6% in the first, while Statistics SA said headline consumer inflation accelerated to 7.8% in July, the highest level since May 2009, from 7.4% in June.

TSAM has been the domestic market share leader for the past 42 years, and many other manufacturers and brands wait until it has increased its prices before implementing their own.

Affordability

Gary Scott, Naamsa vice president for retailing OEMs and CEO of Kia SA, said vehicle affordability is the “number one” problem the industry has to solve.

He chaired the local market optimisation committee at Naamsa when the Automotive Production and Development Programme was launched, and said it was focused on growing the domestic market as an underpin for the manufacturing sector – and, fundamentally, about solving the affordability problem.

“How do you get more people into cars while understanding that it is a massive driver of revenue collection for the government but also an enabler to get into the economy and to improve lifestyles?” he said.

Scott said the cost pressures on new vehicles come from the exchange rate, an increasing interest rate environment, shipping costs, other logistics costs, port costs and commodity prices – none of which are working favourably in terms of affordability.

He noted that most cars purchased by private buyers are financed and that banks must price in risk and the cost of borrowing, which means banks are quite hamstrung, particularly when interest rates are increasing.

He said the cost components of owning a car are the monthly instalments, insurance, fuel and maintenance.

Scott said there isn’t anything structurally that can be done in the short term about these cost pressures, which signal that South Africans as consumers in a world market with a global product are becoming poorer.

Open invitation to National Treasury

He said Naamsa has done a lot of work on the affordability aspect and the elasticity model suggests very strongly that if you reduce the cost of a car to consumers by reducing the total tax base of manufactured cars – not the duty base because that is important to the system of manufacturing – more cars will be sold and the fiscus will collect more revenue.

Scott said Naamsa has had quality conversations with National Treasury around this but its views did not gain a lot of traction.

“But the studies are done and we want to invite Treasury to the table to say there is a model, and if you refuse some of these luxury taxes, you will get more people into cars, spin more money for the fiscus, and you will not be taking from Treasury,” he said.