The transport sector defied expectations of under-performance in the fourth quarter of 2022 to be the best sectoral performer, admittedly amongst multiple laggards. The negative impact of
the prolonged Transnet strike had depressed the transport sector’s contribution, with the sector growing by only 0.7% on a quarterly seasonally adjusted basis compared to growth of 3.6% in the third quarter. However, given that the overall economic performance was worse, with real GDP contracting by 1.3% on a quarterly seasonally adjusted basis, the transport, storage and communication sub-sectors were the star performers. This talks to the resilience and diversity of the sector, despite multiple headwinds.
At the end of March the South African Reserve Bank announced a further 50 basis points hike in the repo rate, the second increase for the year and one which sees the repo rate increase to 7.75% while the current prime lending rate shifts to 11.25%, the highest it has been since 2009.
The ongoing challenges of harsh load shedding, high cost of living, high production costs due to high fuel prices, rising wage demands and elevated interest rates, all contributed to the country’s dismal economic performance in the fourth quarter of 2022. With little indication of a notably different economic environment in 2023, but rather even lower economic growth forecasted for 2023 compared to 2022, the economic environment is expected to remain dismal and challenging.
This performance by businesses that form part of the automotive industry is remarkable and shows just how resilient the industry has been. But for how long can this continue? Surely at some stage something has to give?
Vehicle industry experts warn that vehicle pricing might be in for a tough time. While stock levels have normalised factors such as the exchange rate has resulted in substantial new vehicle price increases. In addition, the effects of low stock volumes during the COVID-19 period could soon be felt in the pre-owned market. With low sales numbers in 2020 there is now no one to two-year-old stock available in the pre-owned market and buyers who traditionally shopped in that market now need to look elsewhere, either at more affordable new vehicles or older pre-owned vehicles as the stretch to a new model in their traditional segment is simply too much for already pressured budgets.
The industry is going to have to seriously consider innovative financing options such as plans that allows fleets to acquire the vehicles they require without the burden of traditional finance to own repayment agreements. I suspect the current market might force an accelerated move to the popularisation of leasing models.
This all sounds like a serious disruption for the automotive industry but as always, I suspect that the industry will display resilience and reward those that are innovative in their offering.
As always we bring you a wide variety of interesting news from the world of working wheels in this months edition of Business Fleet Africa, including interviews with representatives from Pargo and Volvo Trucks, both of which are currently innovating in different ways to ensure that their businesses remain relevant in a changing environment.
