Poor Sales in January Point to Declining Market in 2020

  Leo Kok


New Vehicle Sales January 2020

The National Association of Automobile Manufacturers of SA (Naamsa) repeated its well-worn mantra on Monday 3 February, saying the market continued its decline in January 2020.

According to Naamsa, the industry declined by 8.1% in total, when compared to the same month last year and by 5.2% compared to December 2019. This figure is slightly misleading, as BMW announced that it will not report its sales figures at all, leaving a 1 000+ gap in the total sales figure of 39 475 units.

While it is not clear why BMW chose to stop reporting its sales, its decision will impact on any comparative figures between different months and between the various luxury manufacturers. One could work on an average monthly sales figure for the brand for the past 24 months, which would be some 1 386 units and this would mean that the overall market ‘only’ declined by 5.1% in January.

A brief overview of the numbers shows that that Toyota (8 234 vehicles) remains the king of the hill, and Volkswagen (7 994 vehicles, of which 7 565 are passenger cars) remains the top selling passenger brand. Ford is firmly in third place (4 147 vehicles) while Nissan has shown a worrying decline to 2 894 vehicles, only 45 vehicles away from losing its fourth place to Hyundai (2 849 vehicles).

With BMW excluded, the industry sold 28 116 passenger vehicles (down 5.1%) and 9 791 light commercials (down 16.3%). Vehicle exports also declined to 11 373 or 37.7% less than in the same month last year.

What is quite worrying, is that most large banks, Naamsa and several of the vehicle manufacturers have started to openly comment that they expect the market in 2020 to decline. Normally, these commentators would tone down their comments to “flat” or “low growth” to prevent dealers from panicking and ordering fewer cars, or from it becoming a self-fulfilling prophecy, where dealers expect sales to drop, so they do not work as hard and more readily accept lost sales, leading to a general decline in sales.

As before, Naamsa and other industry commentators believe that low consumer and business confidence and general pressure on consumer spending from high living costs, taxes and rising electricity prices are to blame for the poor performance.

As supporting evidence, they point to the recent rate cuts, which have done little to boost sales. In the past, even a minor rate cut would have a significant impact on vehicle sales as people used their extra disposable income to buy new vehicles.

BMW Head Office, Midrand - The manufacturer will not report its sales figures at all
in the future

In this tough market, the power shifts to the customers. They can start dictating the terms of sale, insist on a discount or trade-in assistance or request extra kit in lieu of a discount.

At the same time, the pressure mounts on smaller brands, which will find it increasingly difficult to reach their sales targets. Think, for instance, of Mitsubishi (153 units sold in January) or Opel (80 units sold nationally in January). These brands do not have the deep pockets of the larger brands, yet they have to spend more money on trade assistance, dealer support and marketing to try and compete with brands such as Ford, Toyota, Volkswagen, Hyundai and Kia.

Meanwhile, the pressure on new vehicle sales will force dealers to look for profits elsewhere. One place is in the service department, where they will increase hourly rates, try their luck at unnecessary replacements or repairs and increase the cost of replacement parts to try and make up some of the lost income.

At a macro level, some commentators have pondered if the slow sales will not delay the introduction of new technology. Who would, after all, want to launch an unproven product in a declining market where you will have to work twice as hard to firstly market the product and secondly convince a cash-strapped buyer to try something new?

This is perhaps the most prevalent in the delayed introduction of electric vehicles in South Africa. Brands such as Nissan (LEAF, new generation) and Mercedes-Benz (EQC) have delayed the introduction of their electric vehicles, while Jaguar’s I-PACE sold only 42 units last year.

On the opposite end of the spectrum, one may see more activity in the entry-level segment of the market. For instance, Suzuki recently announced that it will soon start importing the Indian-built S-Presso, a competitor to the Datsun GO and Renault KWID, to South Africa. Similarly, Mahindra has expanded its range of KUV100 models and added free insurance to all but the most affordable model.

Ultimately, South African vehicle brands are in for another rough ride. WesBank, considered the guru for market predictions, has also called the market down, while Toyota has said that the first three quarters will be the toughest.

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