South Africa is selling fewer new vehicles than it did five years ago.

A sizeable 13% less, in fact, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).

Total new car sales (domestic and export) have dwindled from 617 650 in 2015 to 536 626 in 2019, a drop of 81 024 units.

Over the past five years, barring 2017 when economic growth was above 1%, the country has only seen a downward trend in vehicle sales. This is mainly due to a declining local market.

Naamsa’s recently-released figures for 2019 show a 2.8% drop in new car sales, on the back of a flat economy that has put pressure on consumer budgets and dampened business confidence.

Naamsa estimates that sales will improve by 2% in 2020 if the economy grows by 1% or more, boosting business and customer confidence.

The South African Reserve Bank, International Monetary Fund (IMF) and National Treasury expect GDP to grow by between 1.1% and 1.4% this year. The World Bank however cut South Africa’s GDP growth prospects to just under 1% last week, the first key institution to do so.

Dealers under pressure

The National Automobile Dealers’ Association (Nada) says that while the automotive industry is robust, sustained negative growth will continue to have adverse effects on it for the foreseeable future.

“At the current 1% or less growth we cannot expect the new car market to grow this year. The new vehicle market is looking to be a flat year of volume from 2019 to 2020.”

Nada represents over 1 600 new franchised automotive dealerships, that employ 60 000 people directly and another 25 000 indirectly.

Nada says the fall in new car sales has placed dealerships under “immense pressure” with many now “in ICU”.

“This has resulted in consolidation in the market, either by dealerships closing or dealerships embarking on a multi-franchising model – both have a similar effect: reduced employment as well as less investment.”

Exports supporting numbers

Naamsa CEO Michael Mabasa says record export numbers have supported higher vehicle production volumes over recent years, despite the declining domestic market.

In 2019 South Africa saw a 10% increase in new vehicle exports. And, unlike domestic car sales, SA’s export market has seen consistent year-on-year growth over the same five-year period.

Mabasa says that going further beyond the 60% level is not likely and, should the domestic market not start growing, vehicle production levels will start levelling out.

“We need the domestic market to grow, along with export growth for the industry, to make a more meaningful contribution to economic growth in the country,” he says.

The automotive industry contributes 6.8% to the country’s GDP and accounts for 30% of SA’s manufacturing output. The sector employs 110 000 people in the vehicle- and component-manufacturing segment directly, with the the multiplier effect taking this to at least 457 000 jobs.

Mabasa echoes Nada’s views that the market will stay flat if the economy continues to grow at around 1%, saying that it will take growth rates of around 2.5% for new car sales to start growing by double digits.

The economic growth rate isn’t expected to breach the 1% mark in the medium term.

Treasury and the World Bank have pencilled in projections of 1.7% and 1.5% growth by 2021 respectively.

Mabasa says at this stage the industry is confident that the export momentum that has been supporting vehicle production will continue over the medium term, “and with structural reforms, the South African economy will start to grow at higher levels”.

Masterplan

Government’s plan for a motor programme aimed at fuelling growth in the industry, will see the South African Automotive Masterplan (Saam) come into effect in 2021 and remain in place until 2035.

One of its key targets is to achieve 1% of global vehicle production by 2035. In numbers this is almost 1.4 million units a year, up from the current production of just over 600 000.

Saam will replace the current Automotive Production Development Programme (APDP), which came into effect in 2013 and failed to meet its target of producing one million vehicles per annum by 2020.

Government’s support through the APDP included tax rebates that have cost the state billions over the years – from R18.4 billion in 2013/2014 to just over R28 billion in 2016/2017, according to the 2019 budget review document.

Tumelo Chipfupa, director of Cova Advisory and a former Department of Trade and Industry official, says the new 1.4 million unit target under Saam is realistic.

“Local production for 2019 was approximately 640 000 vehicles, which was 5% growth over 2018. The growth was not driven by local demand, but by export demand growth, which is expected to continue.

“Therefore, if one uses an annual growth rate of 5% from 2020 to 2035, this equates to 1.4 million vehicles.”

Chipfupa adds that the business case to grow the motor industry’s manufacturing base is based on growth in the export market and not the local economy.

Good growth opportunities in Africa

“The global automotive market is approximately 95 million vehicles – including 28 million in China and 18 million in the US, while Africa in total only accounts for 1.2 million, with South Africa [accounting for] nearly half of that. So there are good growth opportunities in Africa.”

He does however caution that the slowing economy in China could impact other regions.

Chipfupa and Mabasa both point out that opportunities will be unlocked through the African Continental Free Trade Agreement, which aims to create a single marketplace across the continent, citing this as a positive for local manufacturers.

“We expect stronger automotive value chains to be created in Africa through the [agreement],” says Chipfupa, adding that this will open up further opportunities for SA-based automotive manufacturers.