It was another big month for unit vehicle sales in February. On a seasonally adjusted basis sales were ahead of the January numbers, which in turn were well up on December.
Year on year growth in unit sales has remained in the plus 20% range. However the quarter to quarter growth rates, which are not dependent on base effects, have surged ahead and are now running well above a 40% per annum rate.
Read this post in the attached PDF to view graphs and tables referred to in the article: Daily View: Why a strong rand is good for the car industry
The Industry is now well on its way to a plus 50 000 unit sale year, still well below the cyclical peak of 60 000 units achieved in 2006. One might have expected sales to date to have added some va va voom to bank credit. However bank lending is much more dependent on housing prices and sales have not (yet?) responded in anything like the extent that vehicle sales have to lower interest rates as well as the stronger rand and more attractive terms.
Perhaps the banks should take a lesson from the motor dealers and their manufacturers on how to stimulate demand for credit. Innovative financial arrangements have clearly helped sell motor vehicles. To quote Naamsa: “Attractive special incentive packages offered by a number of manufacturers/importers during the month of February 2011 also contributed to the rise in sales volumes”. Innovations in housing finance might also help sell homes and the credit that comes with a more lively housing market.
It may be seen how closely Combined Motor Holdings (CMH), a specialised motor dealer, tracks the vehicle cycle. Sometimes the share price leads and at other times it slightly lags the new vehicle market. The share market, it would appear, was therefore somewhat favourably surprised by current sales with the share price lagging behind sales in February 2011. It is of interest to note that the share market in this case displays no willingness at all to look beyond current sales. All that appears to matter for the market value of CMH are current sales and so presumably current earnings. Cyclically adjusted sales or earnings have apparently had no influence on the CMH share price.
The SA motor industry is also benefitting from very strong growth in export volumes. To quote Naamsa again: “Exports of South African produced motor vehicles during February, 2011 at 25 129 vehicles had registered a significant improvement of 10 997 units or 77.8% compared to the 14 132 vehicles exported during February last year. In light of a revival in demand for South African produced motor vehicles in foreign markets, industry export sales were expected to reach 300 000 units in 2011”.
The strong rand has boosted domestic sales by helping the dealers to become competitive with attractive prices for a larger share of household and business budgets. The rand is strong because the global economy has recovered, boosting demand for vehicles and components exported from SA.
The motor industry is providing very convincing evidence that the strong rand is not only good for domestic consumers – it is also proving very good for domestic motor and component manufacturers. It is time for industrial policy in SA to recognise the evidence. A weak rand, whatever its cause (weak global markets or policies that discourage foreign investment in SA) is not good for business. A strong rand is.