Current affairs affecting the economy and auto sales – An expert weighs in

Speaking at the 2024 F&I Industry Virtual Summit, hosted in conjunction with NADA (National Automobile Dealers’ Association) on 21 May, Ipeleng Mabusela, Chief Executive Strategy and Corporate Support of the Retail Motor Industry Organisation (RMI), spoke candidly about the organisation’s views on factors impacting the South African economy and how these could potentially affect the motor industry in 2024 and beyond, particularly motor vehicle sales.

“One of the biggest unknowns is clearly the looming uncertainty around the outcome of the upcoming General Elections,” he said, noting that this uncertainty could keep sales under significant pressure over the remainder of 2024. “The uncertainty will most likely see businesses putting off large investment decisions until after the results are announced.”Mabusela said the outcome of the May elections is critical, as it has a direct impact on future policy decisions of the Government and how both local and international investors will view South Africa going forward. He said one should consider the various possibilities that may emerge, questioning specifically if business should be playing a more vital role in leading where government needs support and partnership or alternatively, if business should be playing a more definite role in shaping policy as opposed to just commenting on it.He also drew attention to the ongoing conflicts in the Middle East, Yemen, Ukraine, Haiti and other parts of the world, which have created a very unstable global economic landscape. He said this, in turn, could switch in any direction at any given moment. “We believe that on the back of this uncertainty, the global economy is expected to remain weak during 2024.”

Moving forward on the premise that both the above domestic and global scenarios remain neutral, or at least stable, he said the other key influencing factors to consider were challenges around SA’s logistics and infrastructure capabilities.“We expect the power grid to remain under pressure for the foreseeable future, although we see some relief as the contribution of independent power producers to the grid increases over time. We think in all probability, however, that this will only be a reality from 2025 onwards.”

Commenting on access at our ports, he said the recent backlog at South Africa’s main Durban port, which had significantly hampered exports, impacted key industries such as mining and manufacturing. He added although there had been a slight improvement in the handling of cargo through Ports of entry, inefficiencies in this area continued to be a major concern and, if not resolved fully, would continue to hamper trade and be a negative enabler of higher costs and pricing.

Mabusela also pointed to increasing concerns around new challenges like the quality and security of water supply throughout South Africa. “Should this not be addressed with the required urgency, it could negatively impact business continuity where water is a critical component of the production process, not to mention the impact on consumers,” he said.

He noted that these are all warning signs of things to come unless business became part of the solution.

On a positive note, Mabusela said we could have an economic light at the end of the tunnel having potentially reached the peak of the interest rate cycle. The question is whether the Reserve Bank would start easing rates to stimulate the markets. “We support the view that the rates will remain unchanged for at least the next five to six months with some relief hopefully kicking in sometime between July and October 2024.”

Real disposable income should start recovering towards the end of 2024 if the new Government refrains from increasing taxes. “We also appeal to the new Government to improve the ease of doing business and enhance foreign investment in South Africa,” says Mabusela.

He flagged if further capital investment was not injected into the South African economy soon, we could see a decline in economic activity and this could have an adverse knock-on effect to our sector of the economy. “In recent times, investment has focused on operational maintenance instead of growth. In other words, investing in back-up power and water solutions, instead of expanding capabilities.”

Given the above-mentioned overriding factors and the various unknowns, he was of the view that the local motor vehicle market would remain constrained and new passenger motor vehicle sales would remain flat during 2024 with some growth only expected early in 2025.

On the flip side, he expected the pre-owned passenger vehicle market to remain strong on the back of a depressed new passenger vehicle sales market and said this should stay true in the short term.

“It is a given that consumers’ disposable income would also remain restrained during 2024, so from an F&I perspective, it’s imperative that these customers have some flexibility in their budgets should markets turn in the wrong direction, resulting in affordability challenges with repossessions becoming a reality. I cannot stress enough that upselling needs to be done in a responsible manner and the best possible financing package should be present to the customer, so that an informed decision can be made to the benefit of all concerned,” he said.

Mabusela closed by saying that given the challenging macro-environment, it was important for individual businesses to look at shifting their business models to be more flexible for consumers in a difficult environment. “As a collective, we also need to find a way to lead the sector and broader economy in policy development and in partnership to address South Africa’s challenges,” he concluded.