“Unsurprisingly and not dissimilar to other major vehicle manufacturing countries, the second quarter new vehicle sales performance registered the biggest quarterly decline on record, nearly double the decline registered in 2009’s Quarter 1, during the peak of the global financial crisis in 2008/2009.”
This is according to National Association of Automobile Manufacturers of South Africa (Naamsa) chief executive Michael Mambasa who this week delivered the industry’s first official report detailing the full extent of the COVID-19 pandemic impact on the sector.
KEY POINTS AT A GLANCE
In a summary of the latest data and its implications contained in Naamsa’s “Quarterly Review of Business Conditions: New Motor Vehicle Manufacturing Industry / Automotive Sector: 2nd Quarter 2020” report, Naamsa note the following key features:
- Overall a quarter of extremities due to the COVID-19 impact but in line with domestic motor industry expectations and global trends in other major vehicle manufacturing countries.
- Second quarter 2020 industry employment reflected a decline of 467 jobs to reach 29 529 positions at the end of June 2020.
- Industry capacity utilisation levels in the various segments reflect the impact of the COVID-19 country lockdown restrictions on the automotive industry as well as the ongoing recessionary economic climate in the country during the quarter.
- Aggregate capital expenditure by the major vehicle manufacturers in 2019 recorded its second highest level on record at R7.274 billion;
- All vehicle segments reflected massive year-on-year declines during the quarter, linked to the temporary closure of the entire motor industry during the quarter due to the COVID-19 country lockdown restrictions as well as in mirroring the current negative economic growth rate in the country as a leading economic indicator;
- Aggregate new vehicle sales registered the biggest quarterly decline on record with the second quarter 2020 reflecting a massive fall of 63.4% compared to the second quarter 2019, which exceeds the 34.8% decline experienced in the first quarter 2009 as a result of the global financial crisis by far; and
- With the easing of COVID-19 lockdown restrictions in South Africa and abroad, expectations are for the domestic new vehicle market and export sales to improve during the second half of the year, but it is anticipated that the new vehicle market could drop back to the levels of 20 years ago.
SIGNS OF RECOVERY
Weighing in on the latest industry data, prominent vehicle finance house Wesbank pointed to signs of improvement in the overall new vehicle market.
SALES STUTTER INTO NEW NORMAL
Noting that “cars sales were down, while bakkies sales improved as sales stutter into a new normal, Wesbank said new vehicle sales in July may have shown a clearer sign of which levels of market activity should be expected as lockdown regulations ease and the economy begins opening up again.
WesBank warned, however, that it was too early to define any kind of trend or level of normality as the complexities and many unknowns of the developing pandemic continue to be felt.
“According to the Naamsa, new vehicle sales declined 29.6% to 32 396 units compared to July last year. This shows some levels of improvement in the context of June sales, which were 30.7% down year-on-year for a market volume of 31 867 units.
HOW THE MARKET REACTED
“We had begun to see uptake on fixed rate deals last month thanks to the low interest rates, and it is interesting to note the significant change in the bank’s average deal duration in July,” said Lebogang Gaoaketse who heads up marketing and communication at WesBank.
WesBank data indicates a shift towards earlier settlements of deals in July.
“We might have considered this as a result of consumers making affordability decisions in terms of monthly instalments, except that the bank’s average deal size is between 10% and 15% higher year-on-year across new and used,” commented Gaoaketse.
“We will require more data before we can fully understand how buyer behaviour is changing.”
RATES CUTS BRING RELIEF
Wesbank said indebted consumers had benefited from another cut in interest rates during July as the Reserve Bank attempts to stimulate the economy and balance some level of relief against investment returns.
“But households were also faced with rising fuel prices of 7.5% despite the price being 20.9% lower than a year ago. Consumer Price Inflation came in at 2.2% although the overall food basket increased 4.2% and many food groups in the car-buying market exceeded this amount,” explained Gaoaketse.
“This all continues to paint a picture of a hard-hit economy that will take some time to recover.”
Passenger car sales fared slightly worse than last month, down 35.8% to 18 905 units compared to July last year. June sales had recorded a 33.4% year-on-year decline with 19 264 units sold last month.
Light Commercial Vehicle (LCV) sales, however, showed a dramatic improvement over June, which was down 29.7%. July sales in the segment came in 19.7% down on July last year to 11 123 sales. This was 934 more units than sold in June.
Gaoaketse said the latest data should also be viewed within the context of other consequences of the lockdown.
“It must be noted that not all segments of the market are contributing to sales as the market slowly re-opens.
“The rental market is effectively dormant until such time as business travel and tourism return to some level of significant operation. Government sales, however, are only slightly lower (6.9%) year-on-year,” continued Gaoaketse.
CAUTIOUS OPTIMISM FOR RECOVERY
Wesbank concluded that while it retained a cautious approach for the remainder of the year, there was some reason for optimism.
“With these experienced levels of market activity amid the peak of the country’s COVID-19 infection rate, more market confidence could be expected as the country begins to slow the onslaught of the pandemic,” said Gaoketse.
July market at a glance
THE DETAIL IN THE DATA
In its comprehensive second Quarter Review report, Naamsa also noted the following additional impacts as a result of the pandemic and subsequent lockdown regime:
Number of shifts
- Under normal circumstances, various manufacturers operate on a three-shift basis as well as multi-shifts in selected areas such as machining, press shops, paint shop operations and body shop.
- Due to COVID-19 and the country lockdown restrictions during the quarter, two manufacturers operated on a combined single-, double- and three-shift basis, one manufacturer operated on a combined double and single shift, one manufacturer on a double-shift basis and three manufacturers on a single-shift basis.
Imported components and raw materials
- The availability and supply of imported components were disrupted by the COVID-19 country lockdown restrictions resulting in supply chain disruptions and ports closures during the quarter.
- Prices of imported components and raw materials were negatively affected by exchange rate depreciation, higher logistics costs and the global price index.
Local components and raw materials
- The availability and supply of local components and raw materials were disrupted by the COVID-19 country lockdown restrictions resulting in the temporary closure of the entire automotive industry during April 2020 and partial easing back into operations during May 2020, which made supply chain management challenging.
- Raw material pricing trends remain a function of exchange rate movements and the global price index and increases in certain raw material prices were noted during the quarter.
Business conditions: Q2 2020
- 2020 Q2 aggregate industry new car sales at 28 201 units recorded a massive decline of 51 814 units or a fall of -64.8% compared to the 80 015 new cars sold during the corresponding quarter of 2019.
- Aggregate industry commercial vehicle sales during the second quarter of 2020, at 16 889 units, similarly recorded a substantial decline of 26 264 units or a fall of -60.9% compared to the 43 153 units sold during the second quarter of 2019.
- All vehicle segments reflected huge declines compared to the corresponding and previous quarters.
- The entire domestic motor industry suspended production during April 2020 resulting in aggregate monthly new vehicle sales declining year-on-year by 98.4%, partially eased back into production in May 2020, resulting in aggregate monthly aggregate new vehicle sales declining year-on-year by 68%, and moved into full production in June 2020 — the latter still reflecting a decline of 30.7% compared to June 2019.
- Analysis of the figures therefore reflects the impact of the COVID-19 country lockdown restrictions coupled with the ongoing recessionary macro-economic climate in the country.
According to Mabasa, the outlook on domestic demand for new vehicles will continue to remain under severe pressure “as the projected negative annualised GDP growth in the country by National treasury and the SA Reserve Bank of over 7% does not bode well for the industry over the medium term.”
He said, in addition, the uncertainty of the anticipated impact and extent of COVID-19 continue to cause planning constraints while the industry’s responsiveness to react and adapt to market changes remain imperative going forward.
“A recovery in the new vehicle market will depend on how quickly the economy can break out of its low growth trap and how soon society will recover from the present COVID-19 lockdown.
“Under normal circumstances, positive factors such as the further 150 basis point interest rate cut to a near 50-year low during the quarter, dealer incentives and low inflation would be expected to support the new vehicle market.
“However, how far these dynamics will move consumers and businesses into new vehicle purchases over the balance of the year remains unclear,” said Mabasa.
He said the industry was “under no illusion that 2020 is going to be a very difficult year” that would be testing its renowned resilience.
ROOM FOR OPTIMISM
Naamsa said the performance of vehicle exports over the course of 2020 remains linked to the duration of the COVID-19 pandemic and its impact on the health of the global economy.
“As is the case in South Africa where the entire motor industry eased into full operation from 1 June 2020, the industry’s major export destinations have also started to ease their lockdown restrictions and vehicle export numbers are therefore anticipated to start gaining momentum during the second half of the year,” concluded Mabasa.