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Are There Signs of Improvement in the Automotive Industry?

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SIMON BROWN: I’m speaking with Ghana Msibi, the CEO of WesBank. Ghana, thank you for your time today. The year 2024 posed significant challenges for the vehicle industry. This year might also be difficult, but perhaps not as severe. Are there signs of improvement in the sector?

GHANA MSIBI: Hi, Simon. Indeed, it’s been a challenging cycle. I would say 2024 is a continuation of a downturn in the automotive industry that has persisted, if I’m honest, for the last decade. We’ve encountered difficulties over the past ten years.

Many people often zero in on 2020 as the lowest point, but the decline has been ongoing for several years.

As you mentioned, we’re anticipating a better 2025. However, I must caution that it won’t be a spectacular recovery.

I’d say it will be modest at best – expecting growth in the range of 3-5%. So, not extraordinarily exciting, but certainly an improvement.

SIMON BROWN: We’ve observed that established brands face significant competition now. The entry of Chinese automakers is intensifying competition from a consumer standpoint, especially regarding pricing and value.

GHANA MSIBI: Absolutely. For context, if we look at 2024, total new car registrations in the market dropped by 3%, landing around 515,000. Local manufacturers, whom we often refer to as traditional players, saw declines over 15%, while Chinese brands experienced a growth of about 25%.

This shift illustrates the changing dynamics of the market – and that’s without even accounting for those brands that launched later in the year… Competition is certainly heating up locally.

Read: SA new vehicle sales surge 10.4% in January

SIMON BROWN: That’s great news for consumers. It often comes down to price and value for money. The local industry must be increasingly aware of this shift. I can’t imagine they’re sitting idle while experiencing a drop like minus-15%. Are they ready for the competitive landscape we’re likely to see in the coming years?

GHANA MSIBI: That’s a thought-provoking question. There are several factors to consider; many traditional brands have adjusted their product lines. When we examine the price differences, competing with some of these Asian brands can become quite challenging. As you mentioned, the value proposition becomes crucial, making the landscape competitive.

Conversely, there’s a shift towards plug-in hybrids, where we don’t see Chinese brands asserting significant influence yet, unlike the traditional ones. This makes consumer choice quite interesting.

Prices will certainly play a role, but there’s also the growing awareness around climate considerations. One thing is for sure: the order of market players is set to change, and Chinese automakers will become formidable contenders in the top 10, that much we can predict.

Listen/read: China rattles global auto sector …

SIMON BROWN: You mentioned plug-in hybrids. I recently saw a full EV charging at a station for the first time. We’re witnessing some growth there, albeit slowly. While many people point fingers at Eskom, the situation does seem to be improving. Additionally, plug-in and hybrid models are gaining traction. Are we expecting to see growth in the broader battery market locally?

GHANA MSIBI: I have to say, in fairness to Eskom, I don’t think they’re solely to blame in this circumstance. There are various factors involved with EVs, such as range anxiety, understanding used vehicle valuations, and improving technology and pricing. The true picture is starting from a very low base, so while we will see some incremental gains, I don’t foresee a significant impact on the overall market just yet.

However, looking beyond South Africa’s borders, we’re already witnessing a drastic increase in the sale of EVs annually.

It’s largely driven by consumers struggling to transition from older vehicles. Battery technology upgrades are leading to better options now. So, normalisation is on the horizon.

Yet, I believe South Africa is still far from seeing a substantial contribution from EVs in terms of overall vehicle sales. On the other hand, we can expect a surge in plug-in hybrids, as we’re seeing many people leaning towards that option over fully electric vehicles.

Read: First signs of SA auto industry deindustrialising, warns Toyota CEO

SIMON BROWN: Absolutely. And you touch on an important point – electric vehicles are still relatively new technology, whereas internal combustion engines have been around for over a hundred years.

One last question before we wrap up: we’ve focused on new vehicles. How is the pre-owned vehicle market performing? If purchasing a new car is a challenge, a second-hand option may fit our budget better.

GHANA MSIBI: It’s fascinating. The used car market is thriving compared to the new car sector, primarily due to price inflation in that segment. More consumers find used vehicles more affordable than new ones.

This landscape will evolve. Right now, we have about 2.6 used vehicles per new vehicle in our records, which has risen from a low of 2.1. This trend will likely continue, but manufacturers are becoming increasingly proactive with promotions to regain market share.

We’re truly entering what I call the ‘Asian invasion’, which will flood the market with new vehicles.

Expect to see a rebalancing soon. However, I doubt we’ll revert to a sub-2:1 ratio for new to used vehicles. Consumers will continue to find better deals in the used market, so I anticipate a continued preference for that option.

SIMON BROWN: “Money on the bonnet” is a great expression! We’ll conclude here. Thank you, Ghana Msibi, CEO of WesBank, for your time today.

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