How South Africa’s vehicle retail landscape is adapting to change
By Paul Marshall, Managing Director, Lightstone Auto
South Africa’s choice of motor vehicle segment and body shape is changing – perhaps permanently – and, as a struggling market adapts to new realities, brand favourites face challenges too.
South Africa’s motor retail industry landscape over the past 15 years has been affected by slow economic growth, poor infrastructure, political uncertainty and a series of global shocks, including the financial markets crash of 2008 and the Covid-19 pandemic of 2020. All left devastating economic and social consequences and, more recently, Russia’s invasion of Ukraine and the conflict in the Middle East are exacerbating global political tension and hobbling economic activity.
Global car sales grew to around 75.3 million in 2023, up from around 67.3 million units in 2022. This growth reversed the falling trend from a slowing global economy in 2020 and 2021. Supply chain disruptions, caused by Covid-19 and geo-political conflict, contributed to shortages in the automotive semiconductor industry. Despite these challenges, 2023 sales surpassed pre-pandemic levels and are forecast to keep rising through 2024, according to Statista.
Both global and local issues impact consumer behaviour in South Africa, and unfortunately, the prognosis for sales isn’t as rosy as it might be for other international markets.
South Africa’s total new vehicle sales of 393,405 (see graph below) in 2009, just after the financial markets crash, were the second-lowest recorded in the past 15 years, marginally ahead of the 389,205 sales in 2020, the year Covid-19 wreaked havoc.
While the market did recover after 2009, to above 600 000 sales a year between 2012-2015, consumer appetite softened ahead of the pandemic, drifting down to 536,604 in 2019. Today, sales have recovered to around the same territory (531,787 in 2023) and any further upward mobility will depend on an improving domestic economy.
All signs indicate that there will be some small interest rate relief from the South African Reserve Bank this year, although government policy may shift as the country adapts to the 2024 election results. Until things change, we can expect to see consumers continue to be under pressure and most likely continue to price down.
Market reaction – brand, body shape and vehicle segment
While tough economic conditions dampen consumer spending, lifestyle changes and consumer resilience drive new ways of adapting to a changing reality – and we see this is in the car brands South Africans buy.
Toyota and Volkswagen remain the country’s favourite brands but after that it’s all to play for. Suzuki came from nowhere in 2018 to claim 3rd spot in 2022, nudging Hyundai back to fourth place, just a year after the South Korean brand moved to third.
Renault and Kia have broken into the top ten recently – Renault in 2014 and is now in 7th spot, and Kia in 2016 and is now 8th. Other new entrants include Chery and Haval. These brands are among the more affordable vehicles from China and South Korea.
Interestingly, both BMW and Mercedes Benz have dropped out of South Africa’s top ten car brands and, as the quality of the more affordable vehicles continues to improve, these brand shifts could become permanent.
Just as brand choice is changing, so too are body shape preferences. The Crossover/SUV was sitting at around 13% of the market in 2009 but climbed steadily over the years becoming the buyer’s first choice around 2020 and, in 2023, accounted for 35% of the market.
The rise in market share, in part, reflects concern among consumers for road safety and a growing preference for more robust vehicles which sit higher off the road, offering greater protection to occupants and better navigation on roads with potholes. The Double Cab One-ton Pick-up is the other vehicle growing consistently over the 15 years and becoming the third top seller in 2023, perhaps providing further support for this observation.
Indeed, as the Crossover/SUV has grown in popularity, the long-time favourite Hatch has come down from a high of 35% to 26%. However, its decline has been overtaken by the Sedan, which has fallen from 21% in 2009 to just 5% market share in 2023.
This is a trend elsewhere too. In the United States, General Motors announced it would cease production of the Chevrolet Malibu after 60 years of production and the Kansas City plant will be retooled to produce the Chevy Bolt, an electric crossover SUV. Once the Malibu goes, GM won’t be selling any Sedans, following both Dodge and Chrysler who have also pulled out of this market.
When it comes to assessing shifts in the light vehicle market by segment (see graph below), the Crossover passenger vehicle has moved from 10th in 2009 to first in 2022, a profound reordering of the market. The small passenger vehicle has been the big loser, going from 15% in 2009 to 3% in 2023.
Where to now?
Dealerships mirror these market shifts. Brand-switching and multi-brand offerings are becoming more common, in a departure from years past when single brand dealerships were common.
Despite the hype, we expect South Africans to take to Electric Vehicles (EVs) at a slower rate than developed economy markets. While the EV growth rate in South Africa has been relatively high, it comes off a low base. Ongoing electricity issues and the availability of charging points, in a country with long travel distances, are obvious hurdles. Petrol stations employ significant numbers of people too, and unemployment is one of the country’s key challenges.
We do, however, expect to see a greater uptake of EVs in the commercial sector, particularly by logistics firms with global parentage, who are going the EV-route as part of their corporate sustainability strategies.
The domestic automotive retail market is experiencing winds of change when it comes to brands, body shapes and categories. Price will be important so long as economic growth and consumer confidence remain flat.