ZUMACONSEQUENCES: In light of the political events, Naamsa will suspend, for the time being, projections for domestic vehicle sales. Image: DAVE FALL
Cape Town - While the dust has far from settled from the political fall-out of President Zuma’s catastrophic decision to sack his competent finance minister and replace him with an individual, shall we say, more in tune with the president’s extra-mural requirements, and the following credit downgrade, means the costs to you the motorist can be clearly laid out.
The National Association of Automobiles Manufacturers of SA (Naamsa) expanded on its concerns, saying under the circumstances it would stop offering predictions of new car sales.
“The performance of the South African automotive industry is closely correlated with the overall performance of the country's economy. In this context, the key performance factors driving the industry include Gross Domestic Product growth, the direction of interest rates and the exchange rate. In light of the political events, Naamsa will suspend, for the time being, projections for domestic vehicle sales,” it said.
Further, it warned that in the event of a downgrade, which has now occurred, “the South African economy will experience an immediate sharp recession with negative growth rates which – based on the experience of other countries – are likely to persist at least for two to three years. Sovereign credit downgrades will precipitate significant capital outflows, cause severe exchange rate depreciation, higher inflation and interest rates and result in severe pressure on government finances”.
Here's how the downgrade could affect the SA automotive industry:
• A collapsing currency will make all cars more expensive to buy, even cars built in SA, which are made with many imported components.
• Parts and servicing will become more expensive
• New-car inflation will drive more buyers to the used-car market, which will then itself experience price inflation.
• Currency collapse will increase the cost of petrol and diesel, which is imported, significantly
• Hiked fuel prices will hit the cost of distribution of pretty much everything, meaning food-price inflation will spike again, making even a loaf of bread more expensive, an especially harmful blow for the poor, as grants do not rise in step with inflation.
• Rampant inflation will force the reserve bank to increase interest rates, making all debt more expensive to service. Unless you have a fixed rate, your car repayment costs will increase, along with any bod, credit card and store card debt you might be carrying.
• Rampant inflation will reduce the affordability of everything.
• The sovereign credit downgrade means the government’s R2.2-trillion debt is more expensive to service. This means the government will have to consider reigning in costs (services to the poor), and will have to consider raising taxes - and fuel duties are usually an easy target.
• This will reduce growth or even cause recession, which will hinder job-creation, meaning the perpetuation of current inequalities. Middle-class salaries support an enormous number of people in SA and the pressure on the middle class will severely hit the poor.
• The possibility of a recession is very real, meaning business and consumer confidence will collapse, making people put off buying decisions for big-ticket items such as houses and cars – another blow to the motor industry.