Consumers shift focus to home buying.

One of the constraining factors for vehicle sales in SA may be a shift towards a greater focus on home buying by the household sector, according to John Loos, FNB's household and property sector strategist.

He said this can be in part because for many the vehicle replacement process has been completed following purchasing postponements around 2008/'09, during and after the recession and a period of high interest rates.

"For many, a reliable private vehicle is a more pressing priority than a new home, and so home buying had to perhaps 'wait in the queue', and now its time may have come," said Loos.

There has been a late-2013 surge to 21% year-on-year growth in the value of mortgage loans granted (according to NCR data), while the growth in the value of secured credit granted - a sizeable portion of which would be vehicle finance - has slowed to around 3%. 

To Loos that raised the question as to why residential property has seemingly been “bucking” the economic trend in recent times.

"It has been showing a solid performance at a time when the vehicle market and other parts of retail have been weakening as one would expect with a weakened economic performance," he said. 

"Currently, the seemingly strong residential market, compared to the vehicle market may be exactly due to those supply constraints that residential property has, which are supporting mildly higher price growth of late."

This results in rising confidence in residential property as an asset or investment, following a reasonably solid performance since 2012.

"With household sector indebtedness relatively high these days, the resurgence in residential and mortgage credit demand may just be in part be crowding out growth in credit for consumption purposes," said Loos.

Vehicle sales

"While actual vehicle sales may be starting to feel the negative impact of the January interest rate hike, having already dropped into negative nominal growth territory, the negative forces go further than that," explained Loos.

"This is witnessed in very slow growth in the more cash sales-driven convenience stores, reflecting the impact of slowing real disposable income growth too."

To him rising consumer inflation now implies mounting affordability constraints.

"One indicator of the level of weakness of the consumer, perhaps, is the balance between the value of used vehicle retail sales and that of new vehicle retail sales," said Loos.

February StatsSA vehicle sales numbers the value of new and used vehicle sales declining by -2.2% year-on-year, a further deterioration on the previous month’s -0,3% decline.

In real terms, using the most recent Consumer Price Index (CPI) for new and used vehicle sales in February to adjust the sales value, this translates into a decline of -6.5%   Fin24.com