Cautious pedal to the metal

February’s new vehicle sales in Namibia were met with optimism by local analysts, who pointed out that, in several aspects, it was the best month since 2018.IJG Securities commented that "the strong momentum in both the passenger and commercial vehicle segments was encouraging to see".Compare this to a year ago, when IJG said: "While we estimate new vehicle sales to be marginally higher than the previous two years as the economy starts recovering, we do not expect to see a major uptick in sales in the short-term."In February 2021, the analysts cautiously warned that while new cumulative passenger vehicle sales were "especially encouraging as it could indicate a slight increase in consumer confidence", it was still "early days".A total of 1 103 new vehicles were sold last month, 294 more than the upwardly revised figure from January. This represents a 24.9% year-on-year (y/y) increase from the 883 new vehicles sold in February 2022.During the first two months of this year, a total of 1 912 new vehicles were sold, of which 1 035 were passenger vehicles, 783 were light commercial vehicles, and 94 were medium and heavy commercial vehicles. By comparison, the first two months of 2022 saw 1 591 new vehicles sold.Compared to last year, 2023 is off to a "strong start", IJG said.Picking up speedLast month’s 12-month cumulative figure of 11 244 is still down 50.4% from the peak of 22 664 recorded in April 2015, IJG pointed out. But there are encouraging signs that new vehicle sales in Namibia are shifting into higher gear.The 12-month new vehicle sales cumulative figure is trending at levels last seen in 2019, the analysts said.Last month’s figures represent the most units sold since November 2018, Cirrus Capital said.Units sold last month exceeded the 6-month moving average, "which indicates that vehicle sales are recovering from the dip in sales observed towards the end of 2022", Simonis Storm (SS) said.According to SS, February typically records the highest number of units sold compared to all other months in the previous year. This is "most likely due to some financial recovery post festive season and for tax purposes, as February is the tax year end", SS said.Passenger vehiclesA total of 559 new passenger vehicles left local showrooms last month, up 27.3% y/y and 17.4% month on month (m/m). This is the highest monthly number of new passenger vehicle sales since July 2018, both IJG and Cirrus pointed out.According to IJG’s calculator: "On a 12-month cumulative basis, new passenger vehicle sales have increased by 26.2% y/y to 5 763. The 1 035 new passenger vehicles sold so far this year mark the highest number of year-to-date sales by February since 2016. Compared to the same period in 2022, the year-to-date figure for February has increased by 189 units, or 22.3% y/y."Passenger vehicle sales represented 51% of all new vehicle sales in Namibia last month.Cirrus noted that an uptick was seen in vehicle inflation in January 2023, up 6.2% y/y – the highest since December 2021, when it came in at 6.0%. "This, however, did not have any impact on passenger vehicle sales for the month," the analysts commented.SS agreed, saying that vehicle sales have been resilient since 2021, despite rising car price inflation.Car price inflation has averaged 4.3% y/y for every month in 2022, and SS expects similar movements this year due to the weak rand/Namibian dollar exchange rate.Globally, JP Morgan reported that the average price for vehicles in the US increased by 4.2% y/y in January 2023. TransUnion reported that new vehicle pricing in South Africa increased from 2% in the last quarter of 2021 to 7% in the corresponding quarter last year, SS said."Increasing prices are caused by inflationary input costs, such as diesel, freight, shipping, logistics and electricity," the analysts explained.Commercial vehiclesLast month was also a strong month for new commercial vehicle sales, with 544 units sold - the highest monthly figure since March 2021, IJG said.New commercial vehicle sales rose 63.4% m/m and 22.5% y/y in February. The month saw 486 light commercial vehicles, 25 medium commercial vehicles, and 33 heavy commercial vehicles sold.Light commercial sales rose by 32.8% y/y, and medium commercial vehicles grew by 56.3% y/y. Heavy and extra heavy vehicle sales, however, declined by 46.8% y/y from a high base in February 2022."All sub-categories, bar heavy- and extra-heavy vehicles, have recorded growth on a twelve-month cumulative basis, with light commercial vehicle sales increasing by 16.6% y/y, medium commercial vehicle sales rising by 12.4% y/y, while heavy commercial vehicle sales contracted by 16.7% y/y," IJG said.Interest ratesCirrus believes that the recent announcement by the Bank of Namibia (BoN) to raise the repo rate by 25 basis points to 7.00%, will add further pressure on the affordability of vehicle lending.SS, however, maintains that local demand for new vehicles across the passenger and commercial segments is unlikely to be deterred by high interest rates."The repo rate has normalised to pre-pandemic levels, and at the same time, vehicle sales remain at elevated levels," SS said.BoN data shows that instalment and leasing credit for households grew by 3.1% y/y in January, compared to 2.7% y/y in December 2022. For corporates, the rates were 12.7% y/y and 13.8%, respectively."Despite this growth, some local banks still view vehicle loans as risky, leading to a reduction in the availability of these loans for households."As a result, together with an increasing repo rate, households may be discouraged from using instalment loans to finance their vehicle purchases, leading to an increase in cash sales, as confirmed by various local dealerships," SS said.The analysts added: "Furthermore, the reduction in consumer spending and household discretionary income, brought on by rising fuel costs, electricity costs and other basic expenses, should have a negative impact on vehicle sales, but the data is not reflective of this."BudgetBudget documents tabled recently by finance minister Iipumbu Shiimi show government intends to spend nearly N$560 million on vehicle acquisitions over the medium-term expenditure framework (MTEF) until 2025/26.Of this, about N$180 million has been earmarked for 2023/24. In 2022/23, government spent an estimated N$29.7 million on vehicle purchases. In the fiscal year before that, government’s vehicle budget was zero."This planned expenditure will result in more vehicle sales over the MTEF – much to the relief of the local dealerships," Cirrus commented."If materialised, increased public spending on vehicles may assist vehicle sales to persist on an upward trend throughout 2023. This will be in addition to the high demand from the private sector for both passenger and light commercial vehicles," SS said.ImportsNamibia saw a surge in vehicle imports in January, with commercial vehicle imports rising by 58% y/y and passenger vehicle imports rising by 62% y/y, SS remarked. On a monthly basis, commercial vehicle imports increased by 13%, while passenger vehicle imports surged by 160%."This is indicative of supply chain pressures easing, and it is expected by local dealerships that this will likely continue improving in 2023. Rising vehicle import values could naturally also be due to a weakening rand exchange rate," SS explained.Cirrus pointed out that the ongoing power outages in South Africa are concerning, as they may lead to a reduction in manufacturing output."The persistence of global shortages of semiconductors is expected to reduce vehicle availability. However, car manufacturers have now started reducing the number of semiconductor chips in some car models – which should somewhat offset the backlogs," the analysts said.SS quotes The Economist, saying the global economy received positive news as supply chain issues eased in recent weeks, with ocean shipping costs falling close to pre-pandemic levels."Retailers now face the challenge of maintaining sales and clearing bloated inventories. When analysing 143 countries, the International Monetary Fund (IMF) estimates that cutting shipping rates in half could lead to a reduction in vehicle inflation by 70 basis points," SS said.The analysts concluded: "The global supply chain volatility index dropped in January, indicating stabilisation and reducing inflationary pressures. In addition, commodity prices remain on a downward trend year-to-date, and this should keep vehicle inflationary pressures at bay. However, the weaker rand exchange rate will prevent this from benefiting new vehicle prices in Namibia."

Cautious pedal to the metal

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