Trucks selling like hot cakes

Monday, 07 April 2008 14:07

Despite difficult economic circumstances caused by factors such as high interest rates, the South African freight vehicle industry is still going strong, although the outlook for car and light commercial vehicle sales is less optimistic.

The National Association of Automobile Manufacturers of South Africa (Naamsa) released its figures for 2007 in early January. Total medium and heavy freight vehicle sales were at 37 069 units. This constituted a 12% increase on 2006. Freight vehicle sales in 2006 had been the highest since the previous all-time truck sales record established in 1981. The freight vehicle sales boom was largely driven by the construction industry, which shows no signs of looking back, and the enormous government infrastructure programme broadly focused on the forthcoming 2010 Fifa Soccer World Cup.

September was a particularly interesting month. Notwithstanding the sharp drop in medium-sized freight vehicle sales figures compared to the same month the previous year, heavy- and super-heavy-duty vehicle sales remain in superb health, In fact, the biggest hurdle that the freight vehicle industry faces is not a scarcity of vehicle buyers. Rather, the problem is adapting heavy-duty vehicles to clients’ requirements in time.

According to Rapport, by September last year, freight vehicle sales had declined 11.6% overall compared to figures for the previous September. Naamsa reported that a total of 3 017 freight vehicles had been sold.

The decline in sales was largely ascribed to lower demand in the medium freight vehicle segment. Sales in this area dropped by 21.4% compared to September 2006. Total medium freight vehicle sales amounted to 1 181 units.

It would appear that high interest rates and the National Credit Act (NCA) have had the greatest impact, especially on smaller operators. Another possibility is that the recently ended strike in the vehicle parts industry could have exercised a negative influence on supply availability.

In contrast to the medium freight vehicle segment, the heavy freight vehicle segment reflected only a slight decline of 0.5%. Sales figures for the month in this section amounted to 638 units.

Bucking the trend completely, extra-heavy freight vehicles climbed 8.3%, recording sales of 1 062 units.

Another highlight was the bus segment. Sales shot up by 63.9%, for a total of 136 units.

Nissan Diesel South Africa vice president Rory Schulz told Rapport that September sales were likely affected by problems encountered with the chassis and cab assembly process. Difficulties were also experienced in getting sold units adapted for clients by bodywork outfits.

The industry’s difficulty in supplying dealers with units and preparing units for clients also put considerable pressure on vehicle manufacturers and dealers.

Strong as the freight vehicle industry might be, car and light commercial vehicle sales tell a different story. The slowdown in this sector after years of successive record-breaking sales figures is said to be the outstanding feature of the motor industry’s performance last year.

Econometrix motor industry analyst Tony Twine told Business Report that the light vehicle sales slowdown began in October 2006, although sales of commercial vehicles over 3.5 tons have grown firmly. In Twine’s words, “The dichotomy caused by the combination of interest rates and NCA on the light vehicle side, and the push effect of infrastructural investment and the economy continuing to grow at or near to 5%, will be noticeable for years.”

Government policy for the motor industry remains a continuing source of uncertainty. The trade and industry department announced in December that the provisions of the motor industry development programme (MIDP) would remain effective until 2012. At that point, a new industry support programme will come into play. The support programme, intended to enhance the domestic value chain, will remain in effect until 2020. Focusing on value addition, it will probably be a production subsidy, the exact level of which will be determined by a cost-benefit analysis and announced in August. A robust evaluation structure will probably be introduced. The programme will remain consistent with South Africa’s multilateral trade obligations.

The government has also confirmed that it will assist the automotive parts manufacturing sector, but certain export part categories may be cut or even eliminated.

Deloitte automotive industry group leader Duane Newman was disappointed by the government announcement: original equipment manufacturers cannot wait until August to make investment decisions in January; the announcement has failed to inspire the industry with certainty and confidence with regard to government policy.

Naamsa president Johann van Zyl was more upbeat: the announcement gave the industry medium-term stability; manufacturers should be able to approach planning and investment “with a degree of confidence”.

The uncertainty arising from the delay in finalising the revised MIDP was partially responsible for the Ford Motor Company of Southern Africa losing its contract to produce next-generation Ford Focus cars for the domestic and export markets.

It will be decided whether Volkswagen South Africa (VWSA) keeps its contract to manufacture the Golf 5’s successor for the domestic and export markets or loses it to Germany in the first quarter of the year.

The component-manufacturing sector was sent reeling by a two-week strike straddling September and October. Virtually all motor manufacturing plants halted production; vehicle export contracts and jobs could be lost as a result. South Africa’s reputation as a reliable supplier to world markets could also be impaired.

Elsewhere, the local market has seen the entry of new brands, especially Chinese ones. Renault will start producing Sandero hatchbacks for domestic use and for right-hand drive export markets as well at the Nissan South Africa Rosslyn plant from next year. Tata will start passenger and commercial vehicle production at its new Rosslyn works this year.

Production of the new-generation Mercedes-Benz C-Class was started last year by Mercedes-Benz South Africa, formerly DaimlerChrysler South Africa. General Motors South Africa launched its right-hand drive Hummer H3. Toyota South Africa increased production of the new Hilux, Fortuner and Corolla brands.

These new production efforts take place against a more sombre background than has been the case for a few years. Twine predicts the light vehicle sales slowdown to creep into heavy mass categories; the medium commercial vehicle market could also decelerate, although the heavy-weight market is likely to experience continued growth. Total passenger vehicle sales of 376 000 are expected this year. The interest rate will be a decisive factor in light vehicle sales, with meaningful interest rate cuts unlikely until 2009.

Total passenger vehicle sales since 2005 total over 1.2 million units. These cars will require increasing amounts of service parts in time, Twine said. However, he does not expect the used vehicle market to recover, forecasting new vehicle inflation to remain around a modest 4% – too low to benefit used vehicle prices. In addition, with China putting cheap new vehicles on the market, used car prices will be unattractive. Twine concluded that new and used cars will be a buyers’ market for at least another year.

Greg Penfold