South Africa Autos Report Q3 2009

There is little doubt that the South African automotive industry is in a great deal of trouble, with a consensus that it is facing swingeing cuts in output in 2009 in the face of depressed export markets and plummeting domestic sales. The only disagreement is how bad the situation will get and for how long the slump in output will last. According to the South African Press Association (Sapa), the National Association of Automobile Manufacturers of South Africa (NAAMSA) has revealed that new vehicle sales in May have fallen again. It also added that all segments of the new vehicle market reported a decline, including exports. The total number of units sold was 25,819 units compared with 39,516 in May 2008. Aggregate new vehicle sales for 5M09 were down by 36% to 157,141 units from 244,670 units in the period in 2008.

South Africa’s largest carmaker, Toyota Motor, reported sales of 6,167 units in May, according to Bloomberg, while Volkswagen (VW) ranked second with 4,042 units sold. South Africa’s new vehicle sales in Q408 were down by 30.2% y-o-y to 62,835 units, marking new lows in a market that was already depressed before the international financial crisis affected the market. The NAAMSA has forecast a 16% y-o-y fall in domestic sales to below 450,000 units in 2009 compared with the 533,387 sold in 2008.

However, it expects a recovery in the domestic market from late 2009 as lower interest rates and declining inflationary pressures are likely to improve the financial position of many South African consumers. BMI’s prognosis is not as pessimistic and we believe that new vehicle sales will hit around 500,000 units this year, although we do not believe there will be a significant recovery in market conditions before 2011.

On a positive note, India’s Mahindra & Mahindra, which specialises in sports utility vehicles (SUVs), is likely to start manufacturing cars in South Africa from 2010, as reported by the Indo-Asian News Service (IANS) on June 9. The new CEO of Mahindra South Africa, Ashok Takhur, has stated that the firm was likely to go into partnership with a local manufacturer to make use of their excess capacity (South African carmakers rarely operate at full capacity, and are even less likely to be doing so during the recession). This set-up will also have the benefits of reducing lead time, cutting capital investment requirements, and allowing access to the local firm’s distribution network. The venture is aimed to give the Indian firm a base for expanding its sales in southern Africa, cutting transportation costs from India, currently running at up to US$500 per car. Analysts have also suggested that it could benefit from dutyfree exports to the US under the African Growth and Opportunity Act.