Weak economy to impact on South Africa's car industry

South Africa’s vehicle industry is facing a third successive year of declining sales as a weak economy and rising interest rates hit demand for cars, the head of its manufacturer’ association said on Thursday.

“The industry’s outlook has become more pessimistic for 2016. The industry is looking at a rather unfavorable environment as far as economic growth is concerned,” said Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa.

“2016, we think, will be an even more difficult year and we’re now forecasting domestic vehicle sales declining by between 9 percent and 10 percent in volume terms to about 375,000 units, down from 412,826 sold in 2015.”

After four successive years of growth in new vehicle sales from 2010 to 2013, total sales in 2014 fell 0.7 percent, followed by a 4.1 percent drop last year.

The automotive industry contributes 7.2 percent of South Africa’s GDP, accounting for 3.8 trillion rand ($238 billion) in 2014.

South Africa’s Reserve Bank raised rates by 50 basis points in January pushing prime lending rates to 10.25% and the move is expected to dampen domestic demand for new vehicles.