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Hit By Weaker Rand, South Africans Switch To Smaller Cars
A male lion passes next to a vehicle with people visiting the Lions Park near Johannesburg, June 10, 2010. PHOTO BY REUTERS/Radu Sigheti.
By Xola Potelwa
19/09/2013
JOHANNESBURG (Reuters) - South Africans' love of large, gas-guzzling cars is taking a back seat in the face of record petrol prices, one of the more visible ways in which a sharp drop in the rand is changing the face of Africa's largest economy.
Car sales have been one of the few growth sectors this year as South Africa struggles to shake off the after-effects of a 2009 recession, but increasingly it is smaller, more efficient models that are finding their way onto the roads.
A 16 percent fall in the rand against the dollar this year, including a four-year low of 10.51 last month, drove local petrol prices to a lifetime high of 13.55 rand a litre in August - more than double their levels in early 2009.
As a result, South Africa's total demand for petrol fell by a whopping 37 percent from April to July, according to import data, as people stayed at home, shared rides or traded down to cheaper vehicles.
"Where people are more affluent, they are trading out of your luxury cars or big sedans into SUVs like the Fortuner, and again the trend is towards diesel," said Toyota spokesperson Leo Kok.
The local unit of Japanese auto giant Toyota Motor Corp, the biggest car manufacturer in South Africa, says 98 percent of sales of its popular Fortuner SUV are diesel. Diesel cars are normally more efficient than their petrol-driven counterparts.
Industry data shows two-thirds of passenger sales are now small vehicles, compared with 61 percent four years ago. Over that time, the smallest models have increased their market share to 25 percent from 16 percent.
As well as pushing buyers towards smaller, more efficient cars, the weak currency should help domestic manufacturers as cheap Asian imports become more expensive and locally made products start to look more reasonable.
"The weaker rand helps to make it more difficult for unfairly incentivised products coming in cheaply from the east to compete in our domestic market," said Coenraad Bezuidenhout of the Manufacturing Circle, a factory lobby group.
MANUFACTURING RECOVERY
South Africa's purchasing managers' index, a forward-looking gauge of sentiment among manufacturers, hit a six-year high in August, and in July manufacturing output surged to 5.4 percent year-on-year from 0.5 percent the previous month.
At the same time, the share price of retailer Verimark has slumped as the cost of imported products such as its "Floorwiz" mop and "Pentagon" hair trimmer-cum-electric toothbrush has risen.
In May, the group cited the weak rand as the main reason for a drop of more than two-thirds in its sales.
"We may be seeing the first signs of import replacement as the weaker rand improves the competitiveness of locally manufactured goods versus more expensive imported goods," said Abdul Davids, head of research at Johannesburg-based Kagiso Asset Management.
Although the deeply traded emerging market currency remains vulnerable to shifts in global portfolio flows as the U.S. gets ready to begin reining in its economic stimulus, standard economics suggests the rand should bounce back.
With consumers avoiding expensive imported goods and with South African exports becoming more competitive, the balance of trade should recover, plugging a deficit in the current account, which grew to a hefty 6.5 percent of GDP in the second quarter.
However, as with other emerging markets, the big question is when the current account will start to respond in earnest.
"I firmly believe that the current account will narrow meaningfully in response to the weaker rand, although this will probably occur with a reasonably long delay of at least a year," said Elna Moolman of Macquarie Securities.
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