A slow but steady recovery

• South Africa
• Export, PMI, Sentiment, Vehicle sales
• September 1, 2020

In case you haven’t noticed, the economy has opened up considerably. Restaurants are busy and people are finally doing things with their lives (and money) again.

It’s worth touching on a couple of economic health barometers: new vehicle sales and manufacturing sentiment.

New vehicle sales: do consumers have money?

Bearing in mind that interest rates in South Africa are at an all-time low and desperate car dealerships are offering phenomenal deals, cars still aren’t flying off showroom floors.

Not new cars, at least. I don’t have data for it, but I suspect that used car sales are doing just fine thanks. Using low interest rates, consumers are probably using this opportunity to buy used cars at affordable monthly repayments. Others who would’ve bought a new car but are nervous of their income may be choosing used cars instead.

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It’s a wise move. I personally never advocate the purchase of a new car. It’s a debt trap of note where clever structuring makes the car seem cheaper than it really is (like balloon payments and payment holidays).

19,545 people disagreed with my view in August, choosing to take delivery of a new car. This number is 32.6% lower than new car sales in August 2019, so that’s a strong indication of not just consumer pain, but also the impact of lockdown on car rental companies which are critical buyers of new vehicles from manufacturers like Toyota, VW and Kia.

Interestingly, the numbers look marginally better when trucks and buses are included. For all vehicles, August sales were only 26.2% lower than August 2019.

The August number was marginally higher than July, but nothing to get excited about. It’s going to be a long road for South African consumers.

Vehicle exports: important for our economy

The greater concern is the sharp drop in vehicle exports. One of the few things our government has done right is position South Africa as an attractive manufacturer of vehicles. The likes of Mercedes-Benz, Volkswagen, Toyota and others all take advantage of our manufacturing environment to build right-hand drive cars for global export.

Exports in August were down 46.9% vs. August 2019. That’s bad news for our GDP.

Manufacturer sentiment: Absa PMI

Moving away from vehicles and consumer demand, we can take a look at how South African manufacturing companies are feeling about the world.

Compiled by the Bureau of Economic Research, the Absa Purchasing Managers’ Index (PMI) jumped from 51.2 in July to 57.3 in August. The important thing to understand is that a number above 50 indicates that companies are expanding.

So, not only are companies expanding, but they are expanding faster than they did in July. Manufacturing expansion will create jobs, the lifeblood of our economy. That’s what filters through to consumer measures, like vehicle sales.

Be careful with interpreting this: it’s a subjective measure genuinely based on “optimism” of those in the manufacturing space. It’s hard not to be optimistic in the past 30 days vs. the absolute disaster we all faced in the height of lockdown.

It doesn’t mean things have bounced back to pre-lockdown levels. Nevertheless, it’s encouraging to see a positive trend in the index.

A weak Rand will support domestic manufacturing for export. Let’s hope the unions don’t cause any trouble over the next 24 months so that our manufacturers have some chance of making a full recovery.