Amid economic headwinds, South Africans are increasingly turning their backs on high-end vehicles from luxury brands such as Audi, BMW, and Mercedes-Benz, leading to these automakers experiencing a downturn in sales. The shift in consumer preference is evident as buyers are opting for more affordable options, particularly the influx of Chinese-manufactured vehicles that have entered the South African market offering competitive pricing.
The automotive industry has observed a 5.6% drop in new vehicle sales during the first quarter of 2024 when compared to the same period in the previous year. Although there was a marginal 0.2% uptick in sales from the fourth quarter of 2023, the overall trend points to a decline.
Experts from the industry and financial institutions attribute this slump to a combination of economic difficulties, rising interest rates, and the increasing cost of fuel.
South Africans are grappling with unprecedented levels of load shedding, stagnant wages, a significant 475 basis point increase in interest rates, and a general rise in the cost of living, which are impacting consumers across all income brackets, including the affluent.
DebtBusters, a debt management company, has revealed alarming statistics for the first quarter of 2024: individuals earning above R20,000 per month have a debt-to-income ratio of 127%, while for those earning R35,000 or more, the ratio soars to 172%. These figures are among the highest recorded. The firm also raised concerns over the 41% surge in unsecured debt levels for individuals in the higher earning bracket of R35,000 and above.
This pattern aligns with the current inflation rates and indicates that without significant wage increases, a growing number of consumers are resorting to debt to make ends meet, suggesting a reliance on borrowing as a means to maintain their standard of living amidst the financial squeeze.
This is a major factor in preventing South Africans from being able to purchase vehicles, and this is shown in the graph below, which highlights the decline in vehicle sales as economic strain took hold in 2023.
The National Automobile Dealers Association (NADA) has observed a significant shift in consumer behavior in South Africa’s automotive market, with a growing number of buyers opting to downsize their vehicle choices. This trend is largely attributed to the entry and rising popularity of Asian car manufacturers, particularly Chinese brands, which are offering competitive and more affordable alternatives to traditional luxury vehicles.
Consumers are increasingly gravitating towards cost-effective models from brands such as Suzuki and a host of Chinese manufacturers like BAIC, Beijing, Chery, GWM, Haval, Jaecoo, and Omoda. The impact of these brands is reflected in their sales figures, which have seen a remarkable surge. Over a span of just four years, from 2020 to 2023, sales for these brands collectively soared from 7,611 to 30,850 units, marking a staggering 305% increase.
Haval and Chery have been at the forefront of this buying-down trend. According to data from Naamsa, Haval’s sales skyrocketed to approximately 19,904 units, an increase of over 2,000% from the 872 units sold in 2019. Chery’s sales figures are anticipated to be in a similar range.
Suzuki has also made its mark with significant growth over the past decade, with vehicle sales jumping from 6,402 to 47,201 units, an impressive 637% increase. Henno Havenga, General Manager of Sales and Marketing at Suzuki Auto South Africa, highlighted the brand’s remarkable trajectory, noting that Suzuki sold more cars in January of a recent year than in its first two years of operation in South Africa combined. Since 2017, Suzuki has consistently broken its monthly sales records 25 times.
The rise of these affordable brands has put pressure on premium car manufacturers like Audi, BMW, Mercedes-Benz, and Volvo. BMW acknowledged that the entire passenger car market has contracted over the last decade, not just the luxury segment. The company pointed out that the economic challenges have led to a new trend where consumers are downgrading their purchases in the new car market, opting for less expensive options or forgoing new car purchases altogether.
The decline in sales for luxury brands is stark, with Audi, Mercedes-Benz, and BMW experiencing more than a 50% drop in sales over the last decade. From 71,889 units sold in 2014, their combined sales plummeted to 26,202 in 2023, a worrying 63.5% decrease. Lightstone’s latest data reveals that sales for these premium brands, including Volvo, fell from 28,757 units in 2022 to 26,836 in 2023, a 6.6% decline, which aligns with the annual average decrease since 2014 of 6.35%.
For instance, Audi’s sales have dramatically reduced from 18,375 units in 2014 to just 6,259 in 2023. The downward trend appears to be accelerating, with year-to-date sales of German car brands in 2024 showing a decline of over 10% compared to the same period in the previous year.
Audi commented on these trends, noting that the drop in sales within the larger premium market and overall passenger car sales should be taken into account. Despite the sales slump, Audi has managed to either maintain or even grow its market share in certain years. The brand also mentioned that some South Africans are now delaying their car upgrades, extending the typical replacement cycle from five years to seven or eight years before purchasing a new vehicle.
While some luxury car brands have managed to maintain or even grow their market share in certain years, the harsh economic climate and fragile sales figures are beginning to take a toll. Mercedes-Benz South Africa (MBSA) is the latest to exhibit signs of strain amidst these challenging conditions.
On June 13, 2024, MBSA announced the initiation of a consultation process aimed at restructuring its manufacturing operations. This move could potentially affect around 700 jobs at its East London Manufacturing Plant, signaling a significant impact on its workforce.
MBSA has acknowledged that the automotive industry has been grappling with a multitude of challenges in recent years, which have had a direct effect on the company and its network of suppliers. Among the difficulties cited by MBSA are the deteriorating macroeconomic conditions and persistent issues at ports.
The company further elaborated on the factors contributing to the downturn, noting that consumer confidence has been undermined by a variety of economic pressures. These include volatile exchange rates, stagnant household incomes, escalating fuel prices, and rising costs associated with energy and logistics. All these elements combined have created a challenging environment for premium car manufacturers like Mercedes-Benz, as they navigate through a period of economic uncertainty and shifting consumer preferences.
