April proved to be a good month for SA motor plants and showrooms. 50 920 units were sold with all sales categories – from new cars sold to households to very expensive heavy vehicles sold to business (and exports too) – well up on March and on sales recorded a year before. The early Easter holidays had reduced trading days in March compared to a year before, increasing trading opportunities in April.
On a seasonally adjusted basis, unit sales were up by a solid 7 644 units in April compared to March and were nearly 20% up on April sales a year before. If we combine March and April sales, sales this year of 105 866 units were 6.7% higher than the equivalent two months in 2012. This growth in domestic sales will surely be very encouraging to the industry, especially to its manufacturing and assembly arm, accompanied as it was by very good export volumes of 22 907 units – equal to a solid 45% of domestic sales volumes.
When sales are smoothed and extrapolated using a time series forecast, sales appear to be on track for close to 700 000 units on an annual basis by this time next year. This would leave unit sales close to their record pace of late 2007.
As we show below, the industry marked time between 1990 and 2003. Sales then took off very strongly only to be much depressed in the aftermath of the global financial crisis.
This financial crisis was accompanied by a much weaker rand and significantly higher interest rates. Money market rates were over 12% in mid 2008, with overdraft and mortgage rates of the order of 15% p.a. They have come down steadily and significantly since then. As we show below, vehicle sales in SA appear highly sensitive to the level of interest rates and the associated finance costs. The money market is expecting interest rates at worst to remain at current levels for an extended period of time. Our own view is that the next move in SA interest rates will be down, not up, due to sub-par growth rates. These vehicle sales do however confirm that the economy is performing somewhat better on the demand side than the supply side.
The recent strength in the rand and the lower inflation rate this implies improves the chance of an interest rate cut. The sensitivity of vehicle sales to interest rates makes the argument for lower interest rates a still stronger one. The motor manufacturers are the the largest contributors to manufacturing activity generally. They and the economy deserve all the predictable help they can get form lower interest rates. Brian Kantor
