Light at the end of the tunnel

It seems as if the global economy is slowly starting to stabilise, but this isn’t having a massive impact on the sad state of heavy commercial vehicle (HCV) sales. When can we expect this to change? GG VAN ROOYEN looks at what the rest of 2009 holds in store for HCV sales. It’s been a tough year economically, but it looks like the worst might finally be over. A few countries – Japan, France and Germany, for example – have managed to claw their way out of recession and the global economy as a whole appears to be on the rebound.

Unfortunately, that does not mean that it’s back to business as usual. The economy is recovering, but it is going to be quite a while before the world experiences the same level of economic growth it did prior to this crisis.

South Africa, like many other countries, is still trapped amidst a significant recession. Government recently announced that the country’s economy had contracted for a third successive quarter, posting a decline of 3% between April and June. This is a considerable improvement over the 6.4% decline that was experienced between January and March, but remains a worrying economic contraction.

This gradual trend towards stabilisation is also evident in the commercial vehicle market. Vehicle sales appear to be recovering, but it’s happening very slowly.

“The continued level trend in vehicle sales during July is a welcome positive signal for the motor industry,” says Johan van Zyl, president and chief executive officer of Toyota South Africa. “Certainly our dealers are reporting an increase in showroom traffic as both private buyers and fleet customers are starting to show a renewed interest in new vehicle purchases. Interest rate cuts usually take quite some time to translate into market activity and it seems that at last the impact of the aggressive rate cutting cycle is having a positive impact.”

It certainly seems as if vehicle sales, which at one stage appeared to be caught in a never-ending freefall, are starting to level off. According to Brand Pretorius, chief executive officer of McCarthy Limited, this trend is especially visible in the fleet sector of the market, as feedback from the company’s dealer network indicates that some companies have lifted the ban on capital expenditure, with the result that a number of vehicle fleets are in the process of being renewed.

“Based on these latest trends, it appears as if the downward trend in new vehicle sales has been arrested,” asserts Pretorius.

Commercial vehicle sales, however, continue to struggle. And HCV and extra-heavy commercial vehicle (XHCV) sales remain the hardest hit. A total of 1 176 units (consisting of heavies, extra-heavies and buses) were sold during July, a decline of 995 units or 45.8%, compared to the corresponding month last year. Significantly, this percentage is inflated by bus sales that are currently faring very well owing to the FIFA Soccer World Cup preparations and the implementation of the bus rapid transit system (BRT).

“It is important to acknowledge the important role that bus deliveries are playing in the market recovery. During July, the first dedicated units for Johannesburg’s BRT system were handed over, and a considerable number of buses have also been delivered for operation in the urban and peri-urban operations centred on the major Gauteng cities,” states Casper Kruger, general manager of Hino.

Johan Richards, chief operating officer of Nissan Diesel South Africa concurs: “Bus sales were strengthened over the past few months by increased buying from the government sector and the anticipated build-up of bus fleets leading up to World Cup.”

To be sure, these bus sales are offering much-needed relief, but if one removes them from the equation, the outlook in the heavy segments becomes even bleaker. Sales in the HCV segment decreased by 51% to 357 units, while XHCVs recorded a 57.3% decline to conclude the month on 556 units.

This doesn’t mean that these market segments won’t recover. In fact, they are probably already improving, but it’s going to take quite a while until they reach the levels that they peaked at last year.

“While it may still be too early to speak confidently of a revival in the truck market, and realistic expectations for 2009 remain stuck in a range not exceeding 20 000 units, recent indications suggest that volumes are re-establishing a sustainable platform from which growth can resume from 2010,” states Kruger.

He also adds that the strengthening trend in XHCV sales volumes is encouraging. “Deliveries of these premium units, which are mainly utilised by professional transporters and operators supporting the construction sector, have been the hardest hit during the recent market downturn. The recovery of the XHCV segment is an important sign that the financing structures supporting the commercial vehicle supply industry are returning to functionality.”

So, early indications suggest that 2010 will be a better year than 2009, but the remaining months of this year will be challenging. One issue that is likely to continue to stifle commercial vehicle market recovery is lack of financing. Banks are currently extremely risk averse, and many operators are subsequently finding it almost impossible to acquire vehicle financing.

“What is evident from the performance by various manufacturers in especially the XHCV segment is that companies with access to internal financing are performing better than those without,” says Richards.

The fact that manufacturers are resorting to financing vehicles internally is a worrying trend, but luckily there are signs that this sort of practice won’t be necessary for much longer. Commenting on the improvement in XHCV sales, Kruger states that: “Of course, much of this can be ascribed to efforts made by some vehicle manufacturers to fill the space effectively vacated by the financial institutions over the past 12 months, through the provision of in-house credit facilities. There have been some signs, however, that the more traditional avenues of acquisition financing have also started to become more accessible, and this is a positive indicator for all truck, van and bus sales as we move through the second half of the current year.”