How Will the Car Market Be Affected After lockdown?
In South Africa we saw a massive decline in the purchasing of financed new and used cars in Q1 of 2020. This decline was mostly seen due to the effects of Covid-19 hitting the world by storm. In Q1 of 2020 we saw a decline of 12% compared to the same period last year and March has seen a decline of 35% for new vehicles and 31% for used vehicles.
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New cars sales have dropped by an intense 98.2% During April which is no surprise due to the nationwide lockdown. Stats have been released by the National Association of Automobile of South Africa (Naamsa) that say only 574 vehicles have been sold compared to 36 787 cars sold during the same time last year.
According to the latest TransUnion SA Vehicle Pricing (VPI) the forecast for the rest of the year looks rather bleak.
Kriben Reddy, vice president of auto information solutions for TransUnion Africa stated, “Q1 VPI report painted a gloomy picture for the automotive industry for 2020.”
The recession in South Africa that started at the end of 2019, with forecasts of a decline in car sales pre-pandemic of 3-5% we were already expecting a bad year for the car industry, but no one could have predicted this.
“The positive indicators of petrol price decreases, interest rate drops, below-inflation vehicle price increases, dealer incentives and low inflation could not move consumers into new vehicle purchases in Q1.
“Consumers are currently uncertain on what the future holds through the current lockdown, with unemployment rate increases, negative exchange rate impact, negative annualised GDP growth rate, and Moody’s and Fitch’s rating downgrade all putting pressure on disposable income.”
What does this mean for the car industry?
The negative impact on consumers will cause low consumer confidence which will of course cause consumers to delay any big purchases. The only cars that will generally be purchased during 2020 are used cars, we are already seeing this trend. For every new vehicle that has been financed 2.13 used cars are financed. 35% of used vehicles being bought are under 2 years old and 6% of those cars are ex-demo model cars.
This shows us that South Africans are rather buying older cars as consumers are left with less disposable income says TransUnion. We expect this to remain consistent for the months to come as new vehicles prices increase says TransUnion.
Q1 2020 didn’t see major declines in applications for financing as most of the applications were drawn up before the lockdown started but Reddy said that many of those applications could be reconsidered by consumers as we come out of lockdown due to the economic hit of covid-19.
New research from TransUnion stated that about 8 out of 10 South Africans (79%) stated that their household income has been negatively affected by the Coronavirus and about 9% of consumers say their incomes will suffer in the future. Do yourself a favour and check your car insurance prices against other insurance companies, it’s a great way to save money during this tough financial time:
“This is a tough time for car dealers, who must use this opportunity to make changes to remain competitive in a post-pandemic world.
“There’s a significant opportunity to look at new ways of generating income, and to bring more of a digital element to the car purchasing process to do business remotely and minimize physical contact with consumers,” said Reddy.
The automotive industry contributes 6.9% of GDP in South Africa. 4.4% of this is manufacturing and 2.5 is due to retail. This industry attributes for 30.1% of South Africa’s manufacturing output and vehicle components are exported to 155 international markets around the world. Just the manufacturing side of this industry employs over 110 0000 people and the entire sector creates 457 000 jobs.
Job losses could be between three million and seven million, with the manufacturing industry among those which are worse affected.
As we know many industries are being hit hard by the covid-19 pandemic but we don’t actually realise how long it’s going to take for companies to recover. Reddy says that it’s going to take more than a year for the car industry to recover but we should see some creative marketing when this pandemic ends as everyone will be fighting hard to get consumers.
Manufacturers are offering payment holidays to consumers and may allow consumers to buy vehicles with no installments that need to be paid for up to 6 months. One thing is for sure this pandemic will change the way dealers and consumers do business.
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