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2013-09-19 11:03

SMALL CAR TAKEOVER: The state of the current economy in South Africa is forcing people to downsize to smaller, fuel-efficient vehicles. Image: AP

With the fall of the rand, high fuel prices, South Africans are being won over by smaller, fuel-efficient cars and downsizing on big SUV's.

JOHANNESBURG, South Africa - South African's love of large, fuel-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 during 2013 as South Africa struggles to shake off the after-effects of the 2009 recession but increasingly it is smaller, more efficient, models that are finding their way on to the roads.

PETROL DEMAND DECREASE

A 16% fall in the rand against the dollar in 2013, including a four-year low of 10.51 in August, drove local petrol prices to a lifetime high of R13.55 a litre in August - more than double the price in early 2009. As a result, South Africa's total demand for petrol fell by a whopping 37% from April to July 2013, according to import data, as people stayed at home, shared rides or traded down to cheaper vehicles.

The local unit of Japanese auto giant Toyota, the biggest car manufacturer in South Africa, says 98% of sales of its popular Fortuner SUV are diesel. Diesel cars are normally more efficient than their petrol-driven counterparts. Toyota spokesperson Leo Kok said: "Where people are more affluent, they are trading out of your luxury cars or big sedans into SUV's such as the Fortuner, and again the trend is towards diesel."

Industry data shows two-thirds of passenger sales are now small vehicles; that figure was 61% in 2009. Over that time, the smallest models have increased their market share to 25% from 16%.

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.

Coenraad Bezuidenhout of the Manufacturing Circle, a factory lobby group, said: "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."

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% year-on-year from 0.5% the previous month.

Although the deeply traded emerging-market currency remains vulnerable to shifts in global portfolio flows as the US 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% of GDP in the second quarter of 2013.

However, as with other emerging markets, the big question is when the current account will start to respond in earnest.

Elna Moolman of Macquarie Securities said: "I firmly believe 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."

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Read more on:    toyota  |  south africa  |  car sales  |  fuel prices  |  economy  |  suv

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