New law and higher interest rates cause vehicle sales to drop

Phumza Macanda

Phumza Macanda

South African new vehicle sales declined for the third month in a row in July, as higher interest rates and a new credit law put pressure on sales.

New vehicle sales fell by 6,4percent to 52879units in July, compared to the same month a year ago, the National Association of Automobile Manufacturers (Naamsa) said yesterday.

Total sales amounted to 58843 vehicles, which included sales from Associated Motor Holdings.

"The introduction of the national credit legislation during June 2007 (and) the (new computer car registration) difficulties during the second quarter of the year ... all combined to reinforce the softer trend in new car sales," said Naamsa.

On June 1, South Africa introduced a law that tightens lending rules and makes it difficult for consumers to get credit.

At the same time, higher borrowing costs and record levels of household debt are pinching consumers' budgets.

Car affordability was also affected by higher prices, which are coinciding with bleak inflation prospects. The main gauge of consumer inflation stayed above the Reserve Bank's target for the third month at 6,4percent in June.

The bank responded to the breach by hiking rates by 0,5percent to 9,5percent in June, which totals 200 basis points in increases since June last year. -Reuters