New vehicle sales during December showed a massive decline, the National Association of Automobile Manufacturers of SA (Naamsa) said on Friday.

New vehicle sales for December 2008 stood at 32 765 vehicles, reflecting a huge drop of 12 162 vehicles or a fall of 27.1 percent compared to new vehicle sales of 44 927 units during December 2007, Naamsa said.

"On a market segment basis, vehicle sales during December 2008 (with the exception of the small volume bus sector) registered sharp declines in every segment relative to the corresponding month of December, 2007," Naamsa added.

Commenting on the 2008 year, the association said new vehicle sales had fallen sharply on the back of substantially lower new car, light and medium commercial vehicle sales.

Naamsa reported aggregate sales declined by 123 757 units or 20.3 percent to 488 951 vehicles compared to the 612 708 units sold during 2007.

"This represented the lowest industry annual sales level since 2004," Naamsa said.

Export sales performed well

Sales of new vehicles not reported in detail through Naamsa, added 44 376 units – compared to 63 390 units in 2007 – to the 2008 figures comprising 34 198 cars and 10 178 light commercial vehicles.

This effectively translated into a 2008 aggregate South African domestic new vehicle market of 533 327 vehicles - which represented a decline of 21.1 percent, in aggregate terms, compared to total industry sales of 676 098 units in 2007.

Turning to exports in 2008, Naamsa said export sales had continued to perform exceptionally well – which in turn had lent support to South African vehicle and component producers.

The association said that worldwide, vehicle markets had been under pressure.

Domestically, the South African automotive industry during 2008 had also been confronted with a severe profitability and viability crisis throughout the automotive value chain.

"Pressure on automotive dealers and distributors had been particularly intense throughout 2008 resulting in a number of dealer closures," Naamsa said.

And despite the recent 'welcome' 0.5 percent interest rate cut as well as falling fuel prices, household debt remained high and financial institutions continued to exercise caution in extending credit to consumers.

Conditions remained intensely competitive

Additionally, particularly during the second half of 2008, above average new vehicle price increases (in response to high input costs and a weak rand) had served to undermine affordability, Naamsa said.

"Overall, industry trading conditions remained intensely competitive with margins under continued pressure.

"Corporate fleet replacement was also showing signs of weakness as businesses were confronted by a multiplicity of challenges and a slowing economy."

However, there were signs of some momentum in the used vehicle market Naamsa said.

This market "continued to offer value and provide some relief to the automotive retail and distributive trade".

Naamsa said that on a more positive note, inflation was set to decline significantly and it was "quite conceivable" that the rate of inflation could fall into the Reserve Bank's target range by the second quarter of 2009.

"This would open the way for further interest rate reductions and ultimately an improvement in the financial position of consumers."

Moreover, it was possible that fiscal and monetary policy would increasingly be co-ordinated to provide stability to South Africa's economy, Naamsa said.

As a result, the association projected an improved domestic sales environment during the second half of 2009.

Sapa