I was reading an interesting article yesterday which discussed the change in the automobile market in South Africa. The statistics is what shocked me as I have never seen the numbers before. Obviously the economy and the high unemployment rates have not helped with car sales and most people will rather hang on to the vehicle they have than order a new one.
in 2014 Mercedes, Audi and BMW sold 71 889 vehicles and in 2023 those numbers were down at 26 202 which is a 65% decline in less than 10 years. Those are shocking numbers if you have anything to do with these companies and there is no real answer to combatting this drastic decline other than cutting prices.
A rule of thumb or a guide line regarding finance was that they would offer you roughly 25% of what you were earning. Tis has always sounded a little crazy to myself as wo would pay that type of money into an asset that is losing money each month. Companies used to give their employee a car allowance and maybe they do not offer this type of package anymore. With companies reducing their spend the perks will be the first things to be cancelled. I do think this is where the declining sales have dried up as the costs were never a problem in the past when the economy was healthy.
We people are physically paying for a vehicle out of their own pocket their choices will change and instead of looking for something flashy they will most likely go for a middle of the range type vehicle.
What is also interesting to note is that if someone bought the bottom of the range in any of these 3 manufacturers they would be considered a top 10% earner in South Africa's economy. I know in other parts of the world they would just be seen as normal every day vehicles, but here that is very different.
Mercedes, Audi and BMW seem to have priced themselves out of the local market
having lost touch with their consumer base. Most of these vehicles have risen way above inflation over the last 10 years which has resulted in a much smaller pool of buyers. The bottom range vehicles have risen anywhere between 130% and 220% in the last 9 years which has also played a major role in the sales decline.
Consumers are holding on to their vehicles far longer than they used to and this is also down to the extended warranties being offered by the Chinese vehicle manufacturers. A good example is the Chery that offers a 10 year 1 million kilometer engine warranty. Service plans that extend for 7 years were unheard of 5 years ago and his is what consumers are now weighing up when purchasing vehicles. Why would anyone buy a bottom end vehicle from these 3 manufacturers if they only offered a 3 year warranty and service plan?
I do think Mercedes, Audi and BMW are in serious financial trouble considering SA is just an example of ow their business has declined. You cannot stick to the same business model if your sales are down by 70% and possibly why the likes of Mercedes has teamed up with BAIC owning 10% of that company and BAIC owning 10% of Mercedes. I think we will see more teaming up in the future and the car industry is about to get a proper shake up which we have never seen the likes of before.