South African vehicle sales grew by +7.3% y/y in February, slightly less than January’s 10.4% y/y. Still, the latest reading marks the fourth straight month of sales growth for the automotive industry.

Positively, passenger vehicle sales continue to perform well, growing at +16.8% y/y in February (+18.3% y/y in January). Sales to car rental agencies accounted for +14.6% of total passenger vehicle sales.

In contrast to the encouraging passenger vehicle sales, light commercial vehicle (-11.4% y/y) and extra heavy commercial vehicle sales (-22.1% y/y) continued contracting in February. According to Naamsa, these depressed numbers reflect pressures in fleet renewal cycles and business confidence.

Finally, vehicle exports contracted by -8.6 % in February, after a brief improvement in January (29.7% y/y), as external demand remains weak.

Why does it matter? 
Another month of expansion in vehicle sales is encouraging, illustrating (along with positive retail sales data) that the domestic industry is enjoying some growth after almost five years of difficult business conditions.

Low new vehicle inflation, interest rate cuts, two-pot withdrawals, improved confidence, and an influx of Asian brands are contributing to these improved outcomes. These factors should continue to support vehicle sales in the near term.

Still, an industry recovery is ultimately limited by structural issues, including a weak labour market, failing service delivery, and concerns regarding infrastructural decay.

Moreover, inflation is likely to continue rising, and interest rates will probably be reduced only once more this year. Finally, the potential negative impact of recent political tensions on consumer confidence must also be considered.