The hefty cut in Government spending on new vehicles coupled with amendments to the Credit Agreement Act, which now makes a 10 percent deposit mandatory on new purchases, has hit car sales hard.
Government has budgeted only N$45 million for vehicle purchases in the current financial year, down from N$382 million in the prior year, as an austerity measure to rein in spending in the face of dwindling revenue. Concurrently, the Bank of Namibia last August introduced amendments to the Credit Agreement Act (CAA) in an attempt to discourage Namibians from borrowing money to spend on unproductive goods like luxury vehicles.
Pupkewitz Motor Division Deputy Managing Director, Etienne Steenkamp, told the Windhoek Observer this week that Government’s budget of N$45 million for vehicle purchases means that the State would only buy about 150 cars this year.
“N$45 million at an average vehicle price of about N$300,000 will mean about roughly 150 vehicles will be purchased for the year,” Steenkamp said.
He admitted that Government’s decision to cut back on spending has affected all motor vehicle dealers from whom it has purchased vehicles in the past, as per tender agreements.
“Apart from those who enjoyed tender business, new vehicles retailers were affected more by the revised Credit Agreement Act (of August 2016) causing substantially lower vehicle sales than only from government purchases,” Steenkamp said, adding that the CAA has “smothered” new vehicle sales to dramatic proportions, resulting in a 21 percent decrease in sales last year compared to 2015 and a 23 percent decline in the first quarter of 2017 compared to the same period in 2016.
Steenkamp, however, ruled out shedding jobs, saying “We would rather cut costs through other ways and means and continue to diversify our business”.
The Pupkewitz Motor Division executive said affordability has become a major issue for prospective car buyers as they have to fork out a deposit in a currently subdued economic environment in which banks have now taken a more cautious view in granting credit.
“Despite exchange rate devaluations, which have caused sharp increases in vehicle prices, environmental tax have also added to the higher cost of vehicles. This is a conundrum for the vehicle industry and affiliated add-on services,” Steenkamp said.
In heydays, Government is said to have bought up to 1,500 new vehicles per year, which slowed down to around 200 in 2016.
Auas Motors Managing Director, Gawie Koekemoer, also confirmed that the company was being affected by amendments to the Credit Agreement Act.
He, however, stressed that they had not been affected to the extent that companies that previously relied on Government car tenders had.
Koekemoer also ruled out retrenchments for now.
According to a recent report by IJG Securities, the new vehicle market in Namibia has been in a state of decline since mid-2015, and it seems this trend will continue into 2017.
“This is due to four main factors. Firstly, lower government spending, specifically on capital assets, will have a direct effect on the number of vehicles sold,” the IJG report said.
“Secondly, slower economic growth means that consumers will have lower disposable incomes to spend on capital assets.
“Thirdly, the Bank of Namibia has implemented the Credit Agreement Act, which requires a deposit of 10 percent on all vehicle loans and limits repayment periods to 54 months.
“This has reduced the number of people eligible for credit to purchase vehicles. Lastly, the possibility of higher interest rates following the credit downgrade in South Africa might deter long-term borrowing,” the firm said.
Since January this year, 3,463 vehicles have been sold, of which 1,635 were passenger vehicles, 1,683 light commercial vehicles, and 145 medium and heavy commercial vehicles.
“Compared to the first quarter of previous years, this is below the numbers for the last five years. Vehicle sales have been contracting on a year-on-year basis since mid-2015 and this trend continued unabated in March,” the firm said.