Mixed forecast for South African motor industry in 2024

Leading entities in the South African motor industry have taken mixed views on the outlook for 2024.

For perspectives on the road ahead, TimesLIVE Motoring engaged the minds at automotive business council Naamsa, heads at top-selling vehicle brands in the country, the National Automobile Dealers Association of South Africa (Nada), plus key figures at notable vehicle asset financiers.

Conservative prediction

Last week we attended the Toyota State of the Motor Industry at which Toyota South Africa Motors (TSAM) CEO Andrew Kirby conceded to missing the mark in his total new vehicle market prediction of 570,000 units for 2023.

"Historically, we have always been a lot more accurate, so I'll admit this one we got wrong. We didn't quite forecast on the changes we experienced as a country," said Kirby, blaming the stunted performance on high interest rates, inflationary pressures, increased load-shedding and logistic challenges related to the rail and ports networks.

According to Naamsa, the 2023 sales year ended off on 532,098 units, representing 0.5% growth versus the 529,556 units sold in 2022. Kirby said his outlook for 2024 was more conservative, anticipating 540,000 units.

"In the first quarter of 2023 we were on track for 570,000 units. We saw a significant change in May, then from August we ended up with a fairly soft market all the way through the end of the year," the CEO explained.

From a brand perspective, TSAM enjoyed a successful year, selling in excess of 142,000 units — approximately 10,000 vehicles more than it did in 2022 — and touting its 44th year of overall market leadership.

Naamsa activities

Mikel Mabasa, CEO of Naamsa, is of the impression solutions for difficulties posed against development in our market are not immediate.

"Businesses [in 2024] would continue to face myriad challenges, including supply chain bottlenecks, a global economic slowdown, a worsening energy crisis and protracted geo-political turmoil," he said.

But the council does have plans to actively improve conditions for motor industry activity.

This includes lobbying to secure stable electricity supply for the big seven manufacturers producing vehicles locally, as well as their supply chain of component producers.

Mabasa said the organisation would place "measured pressure" on Transnet to address logistics constraints at national ports.

He confirmed NEV regulatory framework details will be announced in the 2024 national budget in February, believing it would provide an injection of confidence for the domestic automotive industry to accelerate its transition toward production and stimulate demand.

2023 in the rearview

Last year, passenger car sales decreased by 4.4% to 347,695 vehicles, compared to 363,692 vehicles in 2022. Increased activity was seen in the light and heavy commercial vehicles categories.

Light commercial vehicle sales rose by 11.6% to 151,499 units from 135,712 units the previous year.

Heavy commercial vehicle sales increased by a significant 12.8% to 24,646 units compared to the figure of 21,844 in 2022.

Naamsa attributed the growth to transport of goods being forced onto roads due to rail inefficiencies. Medium commercial vehicles declined, however, recording sales of 8,258 units compared to 8,308 the previous year.

While the total new vehicle market did show marginal growth in 2023, it has been anticipated by Naamsa that a full recovery to the 536,612 units recorded in 2019 may take four years.

On a positive note, exports went up and 396,290 units were recorded in 2023, indicating an increase of 44,505 vehicles or a gain of 12.7% compared to the 351,785 vehicles exported in 2022. This exceeded the previous record of 387,092 units in 2019. Two out of every three vehicles manufactured in South Africa are exported.

Next frontier

Despite doubts cast towards the end of 2023, following a well-publicised interview with Volkswagen passenger cars global CEO Thomas Schäfer, Volkswagen South Africa (VWSA) managing director Martina Biene reiterated the brand is here to stay.

She described Africa as the next frontier for automotive growth and expressed anticipation for a recovery in the interest rate. The lead-up to the 2024 general elections will also play a part in the outlook.

"[VWSA] will be taking a keen interest in how the elections unfold with the hopes business and investor confidence will not be affected," she said.

According to Biene, a buy-down trend will continue, resulting in stronger demand for used cars. On the new model front, the manufacturer has five releases on the cards for this year.

MD for Suzuki Auto South Africa (SASA), Teruo Katakawa, believes consumers will continue to focus on economical vehicles in 2024 as the market corrects itself in the wake of an overstock situation experienced in 2023.

Although SASA does not build cars locally, it has become a familiar sight in the top three of monthly new vehicle sales performers. Last December, it sold 3,355 vehicles, behind Volkswagen (5,274 units) and Toyota (11,200 units).

On the premium front, BMW Group South Africa (BMW SA) views potential to get closer to pre-pandemic levels of growth. Its CEO Peter van Binsbergen believes a stabilising rand, reduced inflation and interest rates, as well as renewed hope for improved national power supply, could contribute favourably to business confidence.

He said although progress would be slow and small to start, it would be a step in the right direction.

"I am optimistic as I believe we have the right products in our line-up, including petrol, diesel, full electric and plug-in hybrid vehicles," said van Binsbergen.

BMW SA ended December 2023 with 980 units, ahead of competitor Mercedes-Benz, which recorded 736 units locally. Audi finished with a tally of 463.

Evolving consumer behaviour

"There is a cautious or uncertain outlook for the economy in 2024 due to influencing factors such as oil prices, currency fluctuations, an election-induced legislative landscape and global political dynamics," said Brandon Cohen, national chairperson for Nada.

Cohen echoed the trend of downsizing among consumers, with increasing affordability pressures.

"The convergence of elevated new car prices and the adverse effects of a weakened rand creates a challenging scenario, resulting in diminished affordability within a market experiencing a decline in the availability of cars across different price ranges. This is a concerning culmination of factors affecting the automotive industry."

However, Cohen envisages the potential of opportunity to expand business through developments in technology.

"In 2024, the digital landscape is expected to play an even more prominent role, providing opportunities for dealerships to enhance consumer experiences and build lasting relationships.

"Evolving consumer behaviour [shapes] a market where consumers are more selective and financially conscious in their vehicle choices."

Cohen anticipates regulatory changes for the automotive industry, expecting impact on income tax, VAT, fuel levies, Fica restrictions, BBB-EE with regard to transformation, diversity and inclusion, the National Health Insurance framework, tax credits for medical aid and the release of a government NEV policy.

Affordability pressures

"The biggest challenge we face in the vehicle finance space is affordability," said Thabo Manaka, CEO of Toyota Financial Services South Africa (TFSSA).

"That affordability is impacted by vehicle inflation [that] does not correlate with normal inflation, which results in vehicles being more and more expensive."

According to Manaka, this impacts buying patterns and replacement cycles as customers tend to hold on longer to vehicles.

He is of the view consumers will remain under pressure for a while.

"This economy requires a lot of momentum to stir up the market into customers going back to dealerships."

Manaka believes the first part of 2024 will be flat, with an uptick expected in the second half. The prospect of general elections also impacts certainty, he said.

"General expectations are for interest rates to turn the cycle in the second quarter of 2024 and this will bring relief for strained consumers and vehicle finance businesses such as ours," according to Charl Potgieter, managing executive at Absa Vehicle and Asset Finance.

"Overall, the consumer confidence index for South Africa fell to -17 points in the fourth quarter of 2023, the worst fourth quarter reading in 23 years, amid ongoing concerns over the country's economic situation."

Despite this, the institution believes there are "encouraging pockets of resilience" in the automotive market.