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South Africa Autos Report Q3 2010
Market |
Automotive and Parts |
Report Type |
Market Research |
Country |
South Africa |
Published |
7 July 2010 |
Number of Pages |
72 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
After a sharp drop in sales in 2009 in the wake of the global financial crisis and recession, South Africa’s vehicle market is on the up again. In the first five months of the year, sales totalled 195,779 units, up from 157,121 in the same period of 2009, according to the National Association of Automobile Manufacturers of South Africa (NAAMSA). May sales came to 39,176, compared with 28,952 in the same month of the previous year.
There are several reasons for the upswing, including the global economic recovery, resumed growth in South Africa, greater liquidity and therefore an easing of financial tightness, and pent-up demand. The we expect growth of 3.0% in 2010 – far from stratospheric, but enough to get the automotive market moving again. However, owing to considerable downside risks and underlying economic weaknesses, we do not expect sales to outstrip the 700,000-plus achieved in 2006 until 2014. The recovery will therefore be a steady ascent, rather than a rebound. Similarly, we do not expect exports to top the 284,211 of 2008 until 2013. The gradual and tenuous nature of the global economy’s recovery from the crisis, as well as some production constraints, will dampen export growth.
But despite the low base and the 'World Cup effect', we believe growth is sustainable for the remainder of the year and we stand by our forecast for 16% growth. However, it is in the latter months of the year, and possibly 2011, when any impact from ex-fleet sales is likely to be felt. On the production front, the South African Trade and Industry Ministry has approved the incentive portion of the Automotive Production and Development Programme (APDP), which we believe will give car and component makers the security required to go ahead with investment plans. The ministry has allocated funding of ZAR2.69bn (US$352mn) over the next three financial years, which will enable companies to be prepared for the APDP's implementation in 2012, it reported in June.
The National Association of Automobile Manufacturers of South Africa (NAAMSA) welcomes the ministry's confirmation of this area of the policy. Its executive director, Nico Vermeulen, has said investment from vehicle and component manufacturers a result of the APDP could be as much as ZAR20bn (US$2.6bn). The APDP envisages output of 1.2mn by 2020. While this is optimistic, we expect annual production to be at 650,000 units by the end of our forecast period in 2014, which would already be 40% higher than the 468,000 units we forecast for 2010. This is also in line with NAAMSA's expectations for 590,000 units by 2012. Some macroeconomic weaknesses may also be holding the market back from its full potential, and deterring greater investments, as the IMF pointed out in March 2010. Unemployment is relatively high, limiting the number of households with the wherewithal to purchase a vehicle, and competition and productivity are not as high as they might be in some sectors. Job creation is a major pressure for the economy, which is still top-heavy in some areas. On the other hand, the fund praised South Africa’s sound macroeconomic management and its use of countercyclical measures to lift the economy out of the 2009 recession. Both factors support market and investor confidence in the short and long term.
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