In June 2010, new passenger vehicle sales (as reported by NAAMSA) rose by a still impressive 25.8%y/y. This follows growth of 36.3%y/y in May, and 40.7%y/y in April. Car sales in the first six months of 2010 are now up 27.9%y/y, which certainly seems like a fantastic start to the year, albeit off an exceptionally low base and three years of recession.
For 2009 as a whole passenger vehicle sales declined by a very significant -20.4%y/y, following a decline of -24.0%y/y in 2008 and -9.8%y/y in 2007. Together, these three years are the worst three-year period in recent decades.
Light, medium and heavy commercial vehicle sales have also all recorded very solid performances in the first half of 2010. Total industry sales rose by 20.7%y/y in June and by 23.9%y/y in the first six months of the year. (Vehicle sales are extremely seasonal, correspondingly there is little merit in analysing sales on a month-on-month basis).
The disastrous vehicle sales in 2008/2009 created a very low base of activity in the industry. This extremely low base is now contributing to the exceptional high annual rates of improvement in sales. It needs to be recognised, that the motor industry is the most volatile manufacturing industry in South Africa, measured over any significant time period. Hence this extreme gyration in sales should be expected. In both 2004 and 2005 sales of passenger car sales rose by more than 20% (in volume terms), but then declined for three consecutive years.
There has been some discussion about the apparent mis-match between the robust growth in car sales and the sluggish growth in credit demand. However, in the first five months of 2009 Instalment Sales Finance declined by a very significant R2.0bn, which reflected in extremely poor vehicle sales (most cars are financed using an Instalment Sales Agreement). In contrast, during the first five months of 2010, Instalment Sales rose by R3.0bn. This R5.0bn swing in Instalment Sales credit is very significant. As Mike Biggs from Deutsche Bank (London) has pointed-out on many occasions, it is the change in the momentum of credit that is vital, not the total outstanding balance.
Passenger and light commercial vehicle sales appear to have now moved convincingly past their worst, helped partially by the build-up for the world cup, 30-year low interest rates and rising household incomes. Hopefully the combination of sustained low interest rates and slightly easier bank lending conditions will systematically lead to continued strong sales in the months ahead; but clearly the most recent pace of improvement cannot be sustained. We expect passenger car sales to show an encouraging rise in volumes of around 12% to 15% in calendar 2010.
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