International Corner

Africa: Car repossessions go high

Thursday 24 April 2008 - 14:31

Fidelis Zvomuya, AfricaNews reporter in Pretoria, South Africa, photo: Charlotte Germie.

Car repossessions in Africa's biggest economy doubled to more than 1 000 a month in the second half of last year from about 600 a month as vehicles sales confidence is dropping.

Chris de Kock, WesBank’s sales and marketing director, said the repossessions of cars had spiked in this period but had flattened since then, and were expected to remain at high levels for another quarter before dropping further.

De Kock said his company had seen a flattening in levels of repayment.

“This is attributed to consumers with little chance of surviving the economic cycle, having already been washed out of the system. WesBank had more than 1 million customers, during the release of our latest vehicle sales confidence indicator,” he said.

This was a good indicator of the level of repossessions it would have in the months ahead he said. De Kock said there was normally a lag of six to 12 months, sometimes up to 18 months, between a rise in interest rates and its effect on the new car market.

However, De Kock added that rates had been raised on a consistent basis, resulting in the effect being evident much quicker. "We have seen it in our [loan] book, with our level business and in our repossessions," he said.

WesBank is South Africa’s largest vehicle and asset finance house.

The mobility costs of consumers had increased by 40% in the past four years because of a combination of higher interest rates, insurance premiums and fuel costs, while total monthly maintenance costs had declined because maintenance plans were increasingly included in the price of the vehicle.

Meanwhile WesBank had seen vehicle sales confidence indicator, falling to 5,1 points in the first quarter from 5,4 points in the fourth quarter of 2007.

The indicator, which polled 500 vehicle sales staff, finance and insurance people, measures confidence on a scale of 1-10 with the highest score indicating an upbeat market and the lowest score indicating a subdued market.

"Given the rate hike and fuel increase, the South African vehicle sales market has fallen on tough times. With the bleak economic picture that is being painted by many commentators, the positive future outlook of dealers may be misplaced," Wesbank said.

In the medium term, Wesbank said the respondents' expected the market to pick up slightly with the indicator reading rising to 5.2 in the next three months before climbing to 6.1 by this time next year.

"This seems optimistic given predictions that, even without the current proposals on electricity pricing not taken into considerations, CPIX is only expected to return to the target levels in the last quarter of 2009," Wesbank said.

Jul 7, 2008

South Africa in for tough times after stretch of solid growth

Sunday, June 15, 2008

JOHANNESBURG (AFP) — South Africa, the continent's economic powerhouse, is braced for a slowdown after a stretch of solid growth, as higher interest rates coupled with rising food and fuel costs are set to bite.

Growth in the first quarter measured 2.1 percent on a 12-month basis, down sharply from 5.3 percent in the last quarter of 2007, government statistics show.

The dip has been blamed on energy constraints which led to massive power cuts that forced mines and other industries to shut down.

The country's economy has been growing at an average of three percent since the end of apartheid in 1994 -- a significant improvement from the meagre one percent yearly increase during whites-only rule.

But economists said Thursday's 50-basis-point increase of the key repo rate, bringing it to 12 percent, will hit economic growth and put further strain on consumers' pocketbooks.

"I believe the interest rates will remain high for most of the year," said T-Sec economist Mike Schussler.

"Consumers are starting to tighten their belts and retail sales and vehicle sales are lower. House sales are slowing and prices are under pressure. These factors may contribute to a slowdown in the economy."

Banks have already announced that they will increase mortgage rates by 0.50 percent to 15.50 percent.

Interest rates began shooting up in June 2006 and have gone up nine times by a cumulative 450 basis points.

Central Bank Governor Tito Mboweni has maintained that raising interest rates is the right tool to meet the bank's inflation target of between three and six percent -- a target not being met at present.
Consumers prices, measured by the consumer price index (CPI), leapt 10.4 percent on a 12-month basis in April and economists predict that inflation will not return to within the target range for about two years.

"The central cank has revised its own inflation forecasts, now expecting that CPI will peak at 12 percent later this year, returning to target by third quarter of 2010," said Standard Chartered Bank economist Razia Khan.

"However these forecasts do not account for the possibility of a greater-than-inflation increase in electricity tariffs. Although South Africa has backed away from an all-in-one go 53-percent hike in electricity prices, a sharp increase in electricity prices is nonetheless more probable than not."

With household debt at a record high 78 percent of disposable income, the majority of South Africans are likely to slump even further in debt, according to First National Bank (FNB) economist John Loos.

Add to that escalating food and oil prices, as well as electricity, education and medical costs, and the future does not look bright, added Loos.

Fuel costs reached new highs this month when petrol went up to 9.96 rand a litre and diesel to 11 rand (1.36 dollars, 0.88 euros).

Commuters have been hardest hit by fuel prices, with bus and taxi fares also on the rise.

The impact is evident as well in the number of cars being repossessed by banks, with vehicle repossessions reportedly shooting up by 25 percent in the first two months of the year.

The Congress of South African Trade Unions (COSATU), the country's largest trade union federation, has threatened protests over the escalating cost of living.

"Companies, especially small ones, will face crippling increases in their costs and thousands of jobs could be lost," said COSATU in a statement.

Jul 7, 2008