The consequences of a ‘technical recession’ for South Africa’s large motor industry
South Africa has a large vehicle manufacturing industry. Last week Tuesday news broke that South Africa in now in a technical recession. While many South Africans reacted in panic, when it comes to the South African motor industry specifically, a technical recession does not mean a total doom and gloom scenario. Original equipment manufacturers (OEMs) that export their goods could actually benefit from this situation.
Companies such as Mercedez-Benz Volkswagen, Toyota, Nissan, Ford, BMW, and Isuzu all build cars here
According to George Mienie, CEO of AutoTrader, “Vehicle exports are predicted to grow to 384 000 units next year (from an expected 340 000 this year), and a weaker rand is obviously good news for exporters.”
Mienie further explains that the component manufacturers in South Africa, who are exporting, will also benefit from the weaker rand. “South Africa also has a strong component industry. Catalytic converters have typically been the number one export (catalytic converters to the value of R18,7 billion were exported last year) but engine parts, tyres and engines are exported too,” he reveals.
While the weaker rand is good news for exporters, there is the downside that the prices of imported components and vehicles will rise.
This however could present a unique opportunity to the second-hand car market. According to Mienie, “Used car prices only increase around six months after new cars. Accordingly, if new car prices rise by 10% within the next month or two, used car prices will only rise by the same percentage around six months later. This means that used car buyers can get good value in the used car market right now. This is especially the case for vehicles costing over R500 000,” he says.
While Mienie acknowledges and understands the concern surrounding the technical recession announcement, he believes that the motor industry will survive the current crisis.
Good news for the used car market
“The simple fact of the matter is this South Africans will always need wheels. We rely on cars, buses and taxis for mobility because we don’t have a widespread train or tram network. Maybe we will need to tighten our belts and purchase used cars (instead of new) or we will have to buy down. Maybe we will need to hang onto our vehicles for longer (which will have positive spinoffs for service stations). Maybe motorists will buy cheaper cars (that emanate from China),” he concludes.