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With sales of 621,700 units in 2012 (up 8.8% y-o-y), the South African vehicle market has just put in its third best performance ever. The giddy heights of 2006 and 2007, when 714,000 and 676,000 vehicles were sold respectively, came on the back of real GDP growth in excess of 5% in both years. So why has 2012 been so strong against a backdrop of just 2.7% economic expansion? Our latest Automotive report explores a variety of societal and demographic factors which outweigh simple GDP when it comes to shaping demand.
The underlying truth is quite simply that most South Africans aspire to own a car, especially given the sheer size of the country and the inadequacy of public transport options in many areas. As walking to work or relying on public transport are simply not options for most commuters, (sub)urbanisation is having a positive impact on car sales. In terms of the magnitude of this phenomenon in South Africa, the rural population has actually been declining since 2006, whereas the urban population is expected to grow by 3 million between 2012 and 2020, to be double the size of the rural population.
So, with the size of the employed population increasing again in both 2011 and 2012, pent up demand is coming back. At 13.6 million people, it is back at a level that is second only to its peak of 13.7 million people in 2008. Furthermore, the unemployment rate has stabilised after climbing since 2008, albeit at a comparatively high 25%.
And now align that with a decreasing annual percentage rate (APR), due to a decline in the government-controlled prime rate (known as the repo rate in South Africa), which is helping consumers to clear old debts as well as to start spending again. Indeed, we expect that by 2014 the outstanding balance of auto lending will return to its peak level of 2007.
Euromonitor International income data also reveal that the number of households that could be in the market for a new vehicle already set a new record in 2010, and continues to rise. Apart from in the periods 1999-2003 and 2008-2011, new vehicle registrations have equated to at least 10% of the number of South African households with an annual disposable income (ADI) over US$10,000. Even taking the conservative view that new vehicle sales will only equate to 10% of the number of South African households with an annual disposable income over US$10,000, Euromonitor International’s current forecasts for households by income suggest that new vehicle demand will climb to 780,000 units in 2020.
Finally, the consistent growth of households headed by women and, more recently, the proliferation of single-person households has naturally had an effect on the birth rate, which reduced to 21 per 1,000 of the population in 2012. The upshot is that the number of households with more than two residents has been declining since 2005 and is projected to fall by a million between 2012 and 2020. In contrast, the number of households with only one or two residents is projected to climb by 3.5 million over the same time frame. This phenomenon naturally means that household budgets will stretch further for discretionary items such as cars, almost regardless of the magnitude of economic growth.