After a long period of stagnation, the South African automotive industry is beginning to show signs of recovery. High fuel prices, rising interest rates, and a challenging economic environment—compounded by load-shedding and corruption—had severely dampened consumer confidence and spending since before the COVID-19 pandemic. These challenges led to a sluggish market, worsened further by pandemic-related lockdowns.
Factors Contributing to Market Improvement
However, there’s renewed optimism as economic conditions improve, signaling a potential rebound in the car market. According to WesBank, the worst may now be behind the industry. “The worst is behind us,” said WesBank CEO Ghana Msibi. He pointed out that the vehicle market seems to be at the lowest point of its current cycle and is expected to enter a growth phase, albeit gradually at first.
Recent figures from Naamsa show that new vehicle sales reached 531,933 in 2023, closely matching the 2019 pre-pandemic level of 529,293. This recovery reflects the automotive sector’s resilience, especially with the influx of new, budget-friendly brands. South Africa has seen a surge in affordable automakers, particularly from China, such as Chery, Foton, Jaecoo, LDV, and Omoda, now collectively accounting for around 9% of all light vehicle sales, up from just 2% in 2019.
Outlook and Consumer Confidence
WesBank predicts that this trend will continue as more affordable manufacturers enter the local market. With potential interest rate cuts and falling fuel prices anticipated in late 2024, consumer spending is expected to rise. Reports suggest that the US Federal Reserve may lower interest rates, which could influence South Africa’s repo rates as well.
Msibi noted, “The signs strongly point to a US Federal Reserve decision to cut the lending rate to a low of 3.25% over the next two years, largely due to the reduction in inflation in that country.” He expects the first cut to be modest, around 25 basis points, ahead of South Africa’s Monetary Policy Committee (MPC) meeting.
In a significant development, two MPC members recently supported the idea of reducing the repo rate, the first time such a position has been taken in years. If these conditions remain stable, South Africa may soon see a series of interest rate cuts, potentially reducing rates by 125 basis points by the end of 2025.
While the immediate impact on monthly car payments may seem minimal, the overall reduction in debt payments—covering home loans, credit cards, and other liabilities—could significantly boost consumer purchasing power. This will likely benefit the used car market and demo sales as the recovery takes hold.
Additionally, the formation of the Government of National Unity has brought greater political stability, and South Africa recently marked 150 days without load-shedding, further boosting consumer confidence. Efforts to optimize the country’s port operations are expected to help mitigate vehicle price inflation, currency depreciation, and slow economic growth.
“South Africans have more reason to be confident,” said Lebo Gaoaketse, Head of Marketing and Communication at WesBank. With the prospect of an interest rate cut, the pieces of the recovery puzzle are falling into place, suggesting a brighter future for the automotive industry.
