SA vehicle sales seen under pressure on rates

South Africa's vehicle manufacturing industry is expected to remain under pressure for the next year on higher interest rates and other unfavourable market factors, an industry body said today.

The National Association of Automobile Manufacturers of South Africa (Naamsa) said in a third quarter review it had revised downwards industry sales and production.

"Trading conditions in the new car market have deteriorated substantially in recent months as a result of the 3.5% increase in interest rates over the past 15 months," Naamsa said in a statement.

South Africa's central bank has lifted its repo rate 150 basis points since June, adding to the 200 basis points in hikes during the second half of 2006 to try rein in inflation. The targeted CPIX has remained outside the target range for six months in a row, raising chances of another increase in December.

Passenger car sales have been particularly hard hit by the rate increases. Total new vehicle sales have declined for six months in succession, pointing to lower sales for the year.

Decline in sales
Vehicle production is one of South Africa's biggest manufacturing industries, and growing motor exports are seen as key to cutting unemployment rates officially estimated at 25.5%.

Naamsa said the higher rates, a new, tighter credit law from June, vehicle registration problems earlier in the year and rising household debt had all combined to slow new car sales.

"These considerations have been factored into the latest industry sales, production, export and import projections which reflect fairly substantial downward revisions,

In contrast, demand for new commercial vehicles held up well in the third quarter due to huge infrastructural spending and strong investment, it said.

Naamsa said third quarter sales of passenger cars fell by 10.7% to 102 145 units, compared to 114 344 units in the same period last year.

Combined commercial vehicle sales during the third quarter of 2007 stood at 58 677 units, reflecting a 1.4% decline on 2006. - Reuters