Light at the end of the tunnel for car buyers in South Africa

After a long period of subdued activity, there is finally light at the end of the tunnel for South Africa’s automotive industry.

Since before the era of Covid-19, elements such as high petrol prices, rising interest rates, and a poor economic climate brought about by severe load-shedding and rampant corruption weighed on consumer confidence and spending.

This led to a depressed market, which was only exacerbated and prolonged by the pandemic-related lockdowns.

Now, however, things are starting to look up once again, with economic conditions pointing towards increased affordability in the market in the near future, according to finance house WesBank.

The worst is behind us

When analysing the performance of the vehicle industry, clear patterns are emerging to indicate that the new-vehicle market is in the trough of the current cycle, and about to enter a phase of growth.

“The worst is behind us,” said WesBank CEO Ghana Msibi.

“What lies ahead is the start of the road to recovery: not robust growth in the initial phase, but rather shallow gains in certain pockets.”

Identifying the catalysts for the anticipated expansion, Msibi cited the Naamsa new-car sales data from 2023 when total annual sales reached 531,933, nearly equal to the 529,293 tally from 2019.

The recovery speaks to the resilience of the automotive market in an adverse environment, however, it can’t go unsaid that a slew of new value-oriented brands buoyed sales over the last few years, said Msibi.

Between 2019 and 2023, South Africa welcomed many new automakers primarily from China that cater directly to budget-conscious consumers, including Chery, Foton, Jaecoo, LDV, and Omoda.

Today, these brands account for approximately 9% of all light vehicle sales in South Africa, up from a mere 2% in 2019.

This is a trend WesBank expects to continue going forward as more and more affordability-focused automakers, such as Jetour, set up shop in the local market.

Jetour X70 Plus

In addition, a pending interest rate cut combined with a downtrend in fuel prices is expected to unlock more consumer spending in the latter months of 2024.

It has been widely reported that the US Federal Reserve is eyeing a downward adjustment in interest rates which is likely to have a domino effect on South Africa’s own repo rates.

“The signs strongly point to a US Federal Reserve decision to cut the lending rate to a low of 3.25% over the next two years, driven largely by the pullback in inflation in that country,” said Msibi.

“We expect this to start with a modest 25 basis points cut announcement the day before the meeting of South Africa’s MPC (Monetary Policy Committee), which we hope will take a similar approach in the face of improved Consumer Price Index data.”

Significantly, two members of South Africa’s MPC voted for a reduction in the repo rate in its most recent meeting held in July, which was the first time in years that any member took such a stance.

Should conditions remain stable or improve, South Africa should expect a rate-cutting cycle to commence shortly, which will likely come as a series of 25 basis point cuts, reaching a cumulative 125 basis points drop by the end of 2025, WesBank’s predictions show.

“The impact of the relief in interest rates might not seem significant in relation to what consumers pay towards their monthly car installment,” said Msibi.

“However, the net saving from all debts, including home loans and credit card debt, will be significant, unlocking more buying power that will initially benefit used-car sales numbers as well as demos.”

The industry also stands to benefit from the relative stability that has set in since the formation of the Government of National Unity (GNU), as well as the significant improvement in the country’s energy availability factor, with the nation recently celebrating 150 days of no load-shedding.

Plans to unlock the full potential of South Africa’s ports are further expected to assist heightened vehicle price inflation, prolonged deterioration of the local currency, and marginal economic growth.

“South Africans have more reason to be confident,” concluded Lebo Gaoaketse, Head of Marketing and Communication at WesBank.

“Relative stability has emerged after the formation of the Government of National Unity and the country’s energy availability factor has significantly improved reducing the possibility of load-shedding. With the possibility of an interest rate cut during September, there are many more pieces of the recovery puzzle beginning to fall into place.”