Longer time to repay car loans

The extended loan repayment period might provide immediate relief to consumers, but analysts doubt whether it will boost new vehicle sales.

14 September 2020 | Business

The linear trend … suggests that new vehicle sales in 2020 will likely be the lowest observable value since 2003. – Cirrus Securities

Jo-Maré Duddy – As new vehicles sales this year are on track to hit the lowest figure since 2003, the ministry of industrialisation and trade on Friday announced that the period to repay a vehicle loan was extended from the current 54 months to 72 months.

The executive director of the ministry, Steve Katjiuanjo, in a statement said the amended regulation in terms of the Credit Agreements Act took effect as from 1 September.

“The amendments were necessitated by the fact that the economy for the past four years has been contracting and this state of events was further compounded by the outbreak of Covid-19,” Katjiuanjo said.

He added: “The government has been coming up with strategies that are aimed at resuscitating the economy while at the same time cushioning consumers against the effects of the global economic downturn.”

Katjiuanjo said the amendment is aimed at providing relief to consumers. “Consumers whose income have not been adversely affected are advised and encouraged to maintain their current instalments,” he said.

Showcase of economy

The news followed the release of the latest data which shows 593 new vehicles were sold in August. According to Cirrus Securities, this is 11% lower than July and 26.6% down compared to August 2019. Year-to-date, new vehicle sales contracted by 31.9%.

“Moreover, the linear trend – with approximately 66% of the year complete – suggests that new vehicle sales in 2020 will likely be the lowest observable value since 2003,” Cirrus said.

Commenting on the latest figures, IJG Securities said the new data shows how “badly economic activity has been hampered since the lockdowns were imposed”.

“New vehicle sales are down considerably when compared to 2019, which by itself was a bad year for vehicle sales,” IJG said.

‘Risks remain’

Simonis Storm (SS) said the numbers were to be expected “as the main risks remain – the uncertain economic and health situation, no clear policy direction, reduced appetite for borrowings, business closures, loss of income, reduced spending power, and low consumer and business confidence”.

Cirrus put the existing trend in context of households which remain “characterised by risk of either retrenchments or wage reductions, high debt levels (relative to disposable income) and greater difficulty accessing finance given the riskier macro environment”.

“Moreover, new vehicle sales will also continue to be hindered by increased supply of second-hand vehicles from the tourism industry, as many participants opt to reduce their fleet size – thereby providing a cheap substitute,” Cirrus added.

IJG expects “the current depressed trend in new vehicle sales to remain depressed for the medium term as there are currently very few catalysts for economic growth”.

“It is unlikely that many businesses and consumers will be in a financial position to purchase new vehicles for the rest of the year,” IJG said.

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