Sheshi Kaniki, senior economist at MMI Holdings, says  although household debt as a percentage of disposable income is on the decrease,  at 74.4%, this is difficult to reconcile with data the number of credit active consumers continues to grow as well as the number of consumers with impaired credit records.

With new vehicle sales growth surprising at almost 18% for July this year, economists and industry executives are intrigued as to what is driving the growth – especially against the backdrop of tough economic times.

Kaniki says a part of the answer to what is driving the growth in vehicle sales could perhaps be found in the rapid growth in unsecured credit extended. He says  it is only a hypothesis, but that his reasoning is that if you are unable to get vehicle finance through normal channels, one other channel you could look at is unsecured lending.
Unemployment is high and wage growth is moderate, indicating consumers are financing these purchases through credit.

Paul Choma, national marketing and sales manager for Ford Credit in SA, says  in 2011 they saw 25% of purchases in cash. This has gone up to 30% this year. “We’re not sure what is driving this, it could be borrowing from bonds, it could be personal loans,” he says.

He says  what Ford Credit has seen is that people take out personal loans, for example of R120 000, for deposits for vehicles and then finance the rest. “We have definitely seen an increase in this,” he says.

Regulators have said  the growth in unsecured credit is not something to worry about at the moment.

Kaniki, however, warns that the country should be careful not to create another bubble that will burst in a couple of years’ time.

Unsecured credit, according to the National Credit Regulator, now constitutes 23% of total credit extended, up from 16% in 2010.

Kaniki says the double-digit growth in new vehicle sales in the midst of economic pressures, speaks to the values of SA society. “Whether the economy is doing badly or not people will have that new car,” he says.

Growth in new passenger vehicle sales stood at 18.1% for July according to the National Association of Automobile Manufacturers of SA, with light commercial vehicle sales growing at 19.5%, medium commercial vehicles at 7.3% and heavy commercial vehicles at 9%.

– jeanette@moneyweb.co.za