Falling interest rates ignite that vital spark in vehicle sales
April 3, 2009
By Ethel Hazelhurst
Falling interest rates helped spark a recovery in vehicle sales last month.
The National Association of Automobile Manufacturers of SA yesterday reported a total of 36 331 vehicles sold - a rise of 12.9 percent month on month, the first monthly jump since September. Passenger car sales rose 17.2 percent month on month, while commercial vehicle sales rose 6 percent.
Similar news came from Germany. Sapa-AFP reported that vehicle sales had increased 40 percent last month, compared with March last year, "in what analysts called a shopping frenzy".
In South Africa the surge moderated the year-on-year decline to 30.1 percent from an annual decline of 36.3 percent in the previous month.
The monthly improvement was expected, but the extent of the gain took analysts by surprise. Danelee van Dyk, an economist at Standard Bank, said: "March is the strongest sales month for motor dealers. However, the whopping 17.2 percent month-on-month increase is much larger than expected, and is also the strongest March rebound in five years."
Renewed consumer confidence will provide some relief to the embattled motor manufacturing industry.
The Reserve Bank Quarterly Bulletin last month reported that sales of "personal transport equipment" fell 37.5 percent in the fourth quarter, compared with the same period of the previous year, as consumers faced "a hostile economic environment".
But the environment is improving. Van Dyk said lower borrowing costs "improved vehicle affordability by between R120 to R180 a month, for cars priced at between R120 000 and R170 000".
The calculation is based on the assumption that a car is fully financed over a five-year period, with no deposit or balloon payment.
She said there would be further gains by June, because the benchmark prime rate, now 13 percent, "is expected to fall to 10.5 percent".
But she was reluctant to conclude that a recovery was in place, because real disposable income shrank by 1.9 percent in the fourth quarter of last year, on a seasonally adjusted and annualised basis.
To calculate "real" changes to income, economists strip inflation from any nominal gains made in the quarter.
She predicted "deep economic woes for at least another quarter" as job losses accumulate. "But interest rates could fall by more than anticipated and the net impact on employment may still be positive."
The property market is likely to take longer to respond to falling interest rates.
Standard Bank reported earlier this week that last year experienced a 0.3 percent contraction in median house prices - the worst performance in 12 years. It said the trend had been extended in the first three months of this year.
First National Bank reported its house price index had plunged 7.8 percent last month, compared with March last year, after a revised fall of 6.2 percent in February. It said there had been signs of improved demand. - Ethel Hazelhurst
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