The comments follow the announcement of vehicle sales for December 2010. The National Association of Automobile Manufacturers in South Africa (NAAMSA) showed December 2010 vehicles sales were up 29.6% year-on-year. Vehicle sales for December were at 39 504 units, 9 034 units up on December 2009. With signs of people buying more cars, financiers reckon it's the perfect time for buyers to fix their car loans.
"If the average life of a car loan is 60 months (five years) we recommend it is a good time to look at fixed interest rate loans. The predominant economic view is that we are reaching the bottom of the rate cycle. A fixed rate loan will protect your monthly instalments from future rate hikes," managing executive at Nedbank's Motor Finance Corporation, Trevor Browse, said.
Wesbank and Absa echoed his sentiments, with Sydney Soundy, the managing executive of Absa Vehicle and Asset Finance, stating that the "financing of vehicles on the fixed rate option continued to gain ground as consumers anticipated no further rate cuts in the near future".
WesBank sales and marketing director, Chris de Kock added: "I think it's a good time for customers to fix rates. We have seen the prime interest rate is at the lowest level. There is a strong likelihood that the next interest cycle is going to be up, although there is talk that there could be another cut. Over the duration of a six year period it's a great time to fix your rate now."
Currently South Africa's repo rate is sitting at a three decade low of 550 basis points, while prime for all the big-four banks (Standard Bank, Nedbank, First National Bank and Absa) is at 9%. Low interest rates have been identified as a key factor as it improves the disposable income of a household.
Johannes Khosa, an economist at Nedbank Group Economic unit, said "this year we will continue to see positive vehicle sales numbers as interest rates will remain low. Income growth will continue so the vehicle sales numbers will remain positive but the base effect will diminish. In other words growth rate will moderate ... but it will remain positive supported by low interest rates and income growth".
MFC's Browse, who said his company delivered a record turnover in December 2010, noted that despite interest rates being 6.5% lower now and debt looking more affordable, the average South African debt-to-income ratio remained "stubbornly high" close to 80%. He urged prospective car-buyers to be careful with their vehicle purchase to keep it within their means and make sure that they could afford the insurance and running costs.
On the cost of interest, Browse said the price of each and every application was different, depending on the client risk and risk of the car. He said on average MFC vehicle finance loan rates appear to be in the region of prime + 2.5% due to the banks' increased cost of funding post the global banking crisis and higher bad debt experience in recent years. Absa's Soundy also touted a similar number with Nedbank , also stating that interest given depended on the individual and was awarded on a case by case basis.
Asked which segments had more demand for vehicle finance, Absa's Soundy added: "In terms of value we see quite a stable focus on low-middle end affordable vehicles. The average finance value that we have financed is at R177 000 for both used and new cars, R142 000 for used cars and an average of R229 000 for new cars.
MFC's average car financed was R130 000, according to Browse. Without giving a precise figure Wesbank said throughout the year there has been a buy-down with people buying less expensive cars.
Asked how much of the market share Absa Vehicle and Asset Finance had among the big-four banks, Soundy said: "Given the manner we approached 2009 when the economy was tough we were cautious. So to that extent we are slightly lower than MFC and Wesbank, Wesbank being the bigger of the four. So they (MFC) financed more than we did, like Wesbank did, but we financed more than Standard Bank and that's for 2010.We needed to make sure that we contain the risks."
Browse from MFC said his company would hold on the number two spot, adding it was healthy for the industry not to have one or two dominant banks.
"We welcome a more even spread of market share. We do not see MFC growing its current 30% retail passenger vehicle market share," he added.
Wesbank, the biggest vehicle financier in the country, said both it and MFC have done well in this market environment and that it would be very happy to see a 10% increase compared to 2011. Standard Bank did not have an input saying it was in a closed period. For the latest updates PRESS CTR + D or visit Stock Market news Today
ABSA home loans come in two different types the fixed interest rate loan, and the variable rate loan. The benefits of the fixed interest rate are that no matter what happens in the monetary market, your interest rate will always be the same, and not experience any fluctuations.
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