Car sales surge as recovery speeds up

New vehicle sales have surged for the second month in a row, supporting evidence that consumer spending is on the mend as the economic recovery gathers momentum. 

Overall sales leapt 16,2% in the year to last month, accelerating from a 12% increase in January, as demand for passenger cars climbed, an industry body said yesterday. 

“Vehicle sales in 2010 are off to a fantastic start after three years of decline,” Stanlib economist Kevin Lings said.  The surge is the second positive data surprise this week, after news that factory activity scaled a three-year peak last month. 

New vehicle sales have fallen for three years in a row and plunged by nearly 28% last year, which marked SA’s first recession since 1992. 

The figures from the National Association of Automobile Manufacturers of SA (Naamsa) reinforce the view that interest rates need not be cut again to spur the recovery. 

They also support the view that consumer spending, the economy’s main engine, may be reviving after falling for five quarters in a row.  Passenger car sales, which make up 70% of the total, soared 21,4% compared with February last year — the biggest rise since March 2006. 

“As new vehicle sales are a highly cyclical but often leading component of consumer demand, the latest trends bode well for at least some improvement in overall private consumption,” Citigroup  economist Jean-Francois Mercier said.

Consumer spending makes up 60% of the economy and is crucial to sustaining SA’s recovery, which is being driven by export demand and restocking of local inventories. 

Credit extended to the private sector has retreated for four months in a row, but that mainly stems from sharp falls in corporate borrowing. 

Household borrowing is nudging up, albeit at a sluggish pace.  Naamsa has predicted that new vehicle sales will grow by between 7% and 10% this year, but analysts say that could be surpassed. 

“The outlook for domestic sales for 2010 is improving and could gain momentum as economic activity levels improve further in the medium term,” Naamsa said.  Sales of commercial vehicles rose 8,1% compared with the corresponding month last year, but the breakdown was mixed. 

Light commercial vehicles, bakkies and minibuses were up 13,6%, while the medium and heavy truck segments dived 34,3%. Sales of heavy trucks and buses rose 1,7% year on year. Bus sales expanded by a “remarkable” 71% compared with a year earlier, Naamsa pointed out. 

Analysts said this likely reflected preparations for the Soccer World Cup later this year.  During the month itself, new vehicle sales overall dipped 0,6%.  Exports struck a sour note, falling 5,1% compared with last year.  But the industry body said export sales were likely to improve in the months ahead.

“At this stage, manufacturers’ projections suggested that overall industry export sales could grow by about 32% from last year’s level,” Naamsa said.  Analysts said the industry data suggested the Reserve Bank would keep interest rates steady at its policy meeting later this month.

Source:, 20100303

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