Daily News  :: Southern Africa

Interest affecting the vehicle industry
Tiisetso Motsoeneng
Published: 10-JAN-07

Johannesburg - South Africa's vehicle makers are bracing themselves for a challenging year in 2007 with the domestic new car market likely to move sideways or register modest growth at best, a senior official at the National Association of Automobile Manufacturers of SA (NAAMSA) says.

Johan van Zyl, NAAMSA's president, was commenting on the release of the 2006 figures of new car sales which showed that whilst sales in all four segments - passenger, light, medium and heavy vehicles - during December 2006 had registered improvements on the corresponding month in 2005, the new car market has continued to show signs of a slowdown in sales activity.

"2006 had been an outstanding record year in terms of SA new vehicles sales and domestic production, however, 2007 would be more challenging," van Zyl says in a statement.

The industry representative body expected growth in the new commercial vehicles sales to gain momentum and overtake the new car market. The four interest rates hikes in the second half of 2006 were cited as the major reason for a projected cooling off in the new car market.

"Industry production, however, was projected to reach record levels during 2007 on the back of the roll out of major export programmes," van Zyl said.

The industry sales projections for 2007 were for the new car market to record modest growth with new car sales to improve by between 4 percent and 6 percent in volume terms.

Supported by infrastructural development spending and construction activity and growth in domestic fixed investment, new commercial vehicle sales were expected to outperform the car market with an improvement in domestic sales of between 10 percent and 11 percent.

However, industry production, as a result of vehicle export projects, remains on target to expand further during 2007 and was projected, at this stage, to reach 682,000 vehicles.

This will be an improvement of 11 percent over the 2006 industry domestic production of about 614,000 vehicles.

Van Zyl noted that over the past three years, a solid base, in terms of domestic new vehicle sales, had been established which should support further growth over the medium to long-term.

In the short-term, however, following three successive record years, new car and new commercial vehicle sales were expected to show some consolidation and industry volume growth was likely to be at a more subdued rate compared to the year on year growth of 25,9 percent in 2004, 28,2 percent in 2005 and 15,7 percent in 2006.

The future direction of interest rates and new vehicle pricing which in turn remained a function predominantly of the rand/euro and rand/yen exchange rates, as well as domestic producer price inflation were the key determinants of the industry's 2007 performance, Van Zyl said.

With a widely held view that monetary authorities are likely to raise interest rates further into the New Year and the producer price inflation currently running as high as 10%, a significant pent up pricing pressure was likely to materialise resulting in upward pressure on new vehicle pricing in 2007, van Zyl warned.

He added that the country's growing current account deficit - which on quarterly basis was running in excess of 5% of the country's gross domestic product - and growing imports of capital equipment associated with the infrastructural investment programme were expected to exert pressure on the exchange rate which would also contribute to upward pressure on new vehicle prices, particularly in respect of imports of fully built-up vehicles.

On the positive side, Van Zyl said South Africa's projected gross domestic product for 2007 of about 4.1 percent together with strong business confidence and corporate profitability should serve to support demand for new motor vehicles during 2007.

Moreover, car rental business (boosted by higher levels of economic activity and tourism) and government business (driven by increased investment in infrastructure development and basic services delivery) were also likely to remain strong, van Zyl concluded. I-Net Bridge

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