We are living in changing and dynamic times facing unprecedented challenges for the second year in a row.
In addition to the Covid-19 restrictions, we are all faced with a myriad of other concerning external challenges over which we have little or no control. An ongoing low growth economy and performance; pressure from load shedding and Eskom’s inability to provide sustainable power for businesses and industry to produce and deliver products and services coupled with a lack of appropriate skills and leadership to save our country from a total collapse will once again colour our business landscape this year. Eskom has already announced a 15,63% increase, which in itself, will have a material financial impact. Cost containment and reductions remain a priority while business is recovering from Covid and other economic pressures during 2021.
This month WesBank released its Economic outlook for 2021 which is always a reliable barometer against which to benchmark the performance of our sector. In his presentation, WesBank CEO, Chris de Kock, said that given the economic and socio-political challenges facing the country – both as a result of Covid-19 and those evident in trends already being experienced prior to 2020 – it is likely that both business and consumer confidence will remain subdued. De Kock predicted that there will only be a 12% increase in vehicles sales in 2021 based on the very low base achieved for 2020, Vehicles sales figures were down from 536 626 units in 2019 to 380 449 in 2020, a staggering decline of 29.1%. In the context of yearly total sales figures, the last time we had sales figures similar to the 2021 prediction was in 2010. The impact, not only for dealerships, but the entire automotive aftermarket, is therefore real and concerning given the concomitant impact on job creation and job security at a time when businesses embarked on consolidation and repurposing strategies.
Along with the decline in new vehicle sales, we are predicting a strong buy-down with customers seeking to reduce their monthly instalment by buying a more affordable vehicle. Of significance for our sector, is the growth in the used-car market in the last six months, driven by customers seeking to downscale their vehicle-related costs.
According to de Kock the substantial shift towards the used-car market is being driven mostly by the buy-down effect, but also by an increase in new-car vehicle prices averaging close to double digit in the past year, and stock shortages due to Covid-19.
Some budget relief
On the 24 February, the Minister of Finance, Tito Mboweni, delivered his 2021/2022 budget, a particularly tough one, with huge pressure to restore the economy to ensure economic growth, job creation and a reduction in unemployment while protecting the health system and population during an ongoing pandemic. It is also key to consolidate the country’s fiscal position and show fiscal discipline, particularly to the international rating agencies. With South Africa’s high debt ratio of some 88% to GDP, any downgrades of the country’s credit rating by these agencies will have an adverse impact on our already high interest payments on our international debt.
The fiscal deficit has increased to concerning levels and businesses, big and small, face unprecedented pressure which is evident in the wide-spread restructuring, retrenchments and closing down of once vibrant businesses.
While the reduction of 1 % in corporate taxes and no change in VAT would assist business to some extent, disposable income for consumers on the other hand will be negatively influenced with the increases in fuel levies, carbon tax and sin taxes despite the minor relief in personal income tax.
The tax changes may not be as harsh as anticipated, however, the impact on the automotive aftermarket and our members remain real and challenging.
Competition Commission Guidelines
Finally, another development that will impact the automotive industry shortly is the most recently published Competitions Commission Guidelines for Competition in the SA Automotive Aftermarket which has an implementation date of 1 July 2021. Over a very short period, businesses would have to interpret the guidelines and at the same time introduce changes to their business models in order to be compliant with the Competitions Commissions requirements as per the guidelines.
A priority of the RMI, as has been the case over the last couple of years, will be to ensure we continue to ready our members for these trends through awareness and ongoing information sharing campaigns, similar to our very successful RMI COVID19 Monitors.How our members and business owners think about their future in the industry, how resilient they remain, and how they prepare for change, will be critical to their success in the coming year.
We hope you enjoy our latest edition and remember the RMI and its various associations and structures remain committed to making a difference in the lives of business owners and the economy going forward.
You can read the March Automobil here: Automobil March 2021 (joomag.com)