Wednesday, January 26

New vehicle sales in 2021 exceed expectations

New vehicle sales have exceeded expectations this year but appear likely to decline next year in line with the poorer growth performance of the South African economy and only reach pre-Covid-19 pandemic sales levels in 2023.

Neale Hill, Chairman of the Naamsa Automotive Business Council and Managing Director of Ford South Africa, says the new vehicle market has achieved a robust recovery year to date from the corresponding period severely hit by Covid-19 in 2020.

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Naamsa reported last week that new vehicle sales so far this year through November have increased by 24.8% to 428,131 units out of 342,956 units sold in the same period in 2020.


However, total sales to date are still 13.5% lower than the 494,996 new vehicles sold in 2019 before the Covid-19 pandemic.

Hill said at a Naamsa CEO dinner last week that the automotive business council’s initial projection for 2021, closely correlated with the projected 3.3% GDP growth rate for the year at the time, was for a year-on-year increase of little more than 15.% compared to 2020.

He said the forecast for South Africa’s GDP growth rate for 2021 has been revised up several times this year to around 5.2%.

In line with the improving economic climate, it appears that the full-year new vehicle market will reflect an increase of about 20% year-on-year, Hill said.

“This, however, is still around 15% below the pre-Covid-19 level of 2019.”

“Based on projected GDP growth rates of around 1.8% for 2022 and 2023, the new vehicle market is expected to grow in single digits in 2022 and 2023 to again reach the pre-Covid-19 level in 2023 “he added. .

Azar Jammine, Econometrix’s chief economist, said that in early 2021 they were projecting 15-20% growth in new vehicle sales, but the final figure is likely to end up at the higher end of this projection, if not above 20.%.

He stressed that this forecast takes into account the fact that new vehicle sales comparisons in 2021 would be on a very low base in 2020.

December dip

Jammine noted that the overall market is up 24.8% year-on-year through November, but there is likely to be a drop in year-to-date growth when sales during December are included.

However, he said that year-on-year growth in new vehicle sales is likely to exceed 20%, which “is actually quite good and stronger than anticipated.”

Jammine said this relates to the better-than-expected improvement in South Africa’s overall macroeconomic performance since the beginning of the year, with the International Monetary Fund (IMF) in April forecasting 3.2% growth for the year, but subsequently increasing that. to 5.1%.

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He said that the main factor contributing to the better-than-expected GDP growth result is the fact that the world economy did much better than expected due to the unprecedented aggressive fiscal and monetary policy of advanced economies and the development of vaccines for Covid-19. ahead of expectations.

This meant that many people in countries like the US and the UK were vaccinated at an early stage of the pandemic, allowing economic activity to return to normal much faster than anticipated.

Jammine said this resulted in an increase in demand and the price of raw materials, a growth of more than 45% in South African mineral exports and a huge increase in South Africa’s terms of trade, which contributed to a much better and much stronger economic result. government revenue than budgeted in February.

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In line with that, vehicle sales have been slightly stronger than anticipated earlier in the year, he said.

Jammine said it’s not a surprise that new vehicle sales are still below 2019 levels.

“Total sales in 2020 were -29.1%. Mathematically, if you were to exceed -29.1%, you would have needed 43% growth to get back to where you were in 2019.

“Clearly, although we have had 24.8% growth so far this year, it is not enough to get back to where we were in 2019,” he said.

Shock absorber

Jammine anticipates very low positive growth in new vehicle sales in 2022 and possibly slightly negative growth.

Factors influencing this forecast include declining commodity prices due to expectations of a slowdown in the global economy, which is being driven by the emergence of new variants of Covid-19 and some countries have to reestablish the ones. lockdown restrictions, which will interfere with normal economic activity. and growth.

He said the IMF forecasts GDP growth of 2.2% for South Africa in 2022, while other organizations forecast growth of less than 2%.

Jammine said the growth in vehicle sales follows the change in the growth rate of the economy, which means there is likely to be “only slightly positive growth in vehicle sales next year.”

Hill said the global semiconductor shortage could result in the loss of global vehicle production of around seven million units by 2021.

‘Adverse events’

He added that this year was also characterized by a series of adverse events with serious consequences for the automotive industry in South Africa.

These included the July riots and protests in KwaZulu-Natal and Gauteng; the negative impact of cyber attacks and other networks on Transnet, which led to an escalation of some of the logistics costs of the motor industry; power supply challenges; and the five-week strike by the National Union of Metalworkers of South Africa (Numsa) in the steel sector, which led to delays in the delivery of some mission-critical and locally produced components essential to complete manufacturing processes in the steel industry. motor.


Cautious optimism

Hill said the IMF and several commentators forecast a continuation of robust growth in the global economy in 2022 and 2023.

Many automotive industry business leaders remain cautiously optimistic that domestic market conditions will continue to support new vehicle sales, vehicle imports and vehicle production for the next six months, and that the rest of the key indicators of Industry performance will remain in gradual recovery mode, he said. .

However, Hill said the strong rebound in South Africa’s projected economic growth rate of 5.1% in 2021 is expected to decline substantially in 2022 to around 1.8% and continue “well into 2022” due to challenging economic woes. structural in the country and Covid-19 interruptions of the global supply chain.

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