Isuzu Trucks South Africa director and COO, Craig Uren, predicts a sharp rise in the fuel price in the coming months.
He said this while addressing the media at a business breakfast at the Kyalami Raceway in Johannesburg this morning.
Reflecting on 2016, he said it had been a tumultuous period that swung between extremes, using the prolonged drought and flash flooding as a metaphor to summarise the year.
The truck industry had lost around 10% of its sales because of negative factors, which included political and socio-economic foibles.
He said the biggest new truck sales inhibitor in 2016 was the inability of business to make capital decisions until after the August municipal elections. This deliberation was a “pregnant pause,” which slowed domestic truck sales for several months.
Uren said there were also factors that one couldn’t necessarily see or feel. He explained that average truck pricing in 2016 had increased between 10 and 15% over a 12-month period, which had impacted operators significantly.
He indicated Isuzu Trucks South Africa remained upbeat and is trying to find the positives in South Africa.
He said 2017 is the year we ask, “now what?”. He believes 2017 will be a better year domestically than globally, saying deflation was starting the world in the face and that rating agencies had their hands full.
Uren said the election of Donald Trump in the US and Brexit had had a positive impact on the exchange rate. He said while everyone wanted economic growth, the fundamentals of the economy were dictating the pace.
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He believes huge change is coming to Europe, which is currently experiencing a rise in conservatism. “The Eurozone could crumble,” he said. He added it remained to be seen how this would affect South Africa with which Europe has long-established trade agreements.
Uren said OPEC had lost control and is trying to regain its global influence by raising and lowering the fuel price. As the oil price continues to tick upwards, he predicts a R2 per litre increase in the local price of fuel, which he stated would occur “shortly” as the government needed to raise money, and international factors came into play.
Uren explained the fuel price had a major impact on the replacement cycles of trucks.
He predicts the medium commercial vehicle sector to decline 1.6% in 2017 while forecasting the heavy commercial segment to grow 1.3%. In his view, the extra-heavy commercial vehicle sector will expand 4.5%, while the bus market will inch up 2.1%. Overall, Uren expects the commercial vehicle market to grow a measly 1.8% against 2016, to 27 500 units.
Uren was not overly optimistic about 2017, saying the sale of capital goods would track GDP growth and the general business environment. “The market’s sweet spot is 30 000 units per year,” he says.
He said the worst hit in 2016 were those at the bottom end of the transport market – the small and medium-sized businesses – that bought one or two bakkies and other light commercial vehicles.
“We are in a replacement market,” he said, explaining the sales cycle in the truck business materialized every 18 to 24 months.
He explained that, for Isuzu Trucks South Africa, it is currently all about consolidation and future-proofing the business for the next few years. This is because the trucks business was not a “cyber” business.
He added he was not scared of 2017, before urging those in the industry not to “mistrust the mechanism”. He conceded 30 000 units were not a lot of trucks and so it was about how companies could make the small volumes work for them.
He said the government was trying to create jobs but was not doing so in a sustainable manner, adding the country needed political stability and needed to find ways to aggressively grow the economy. This required a collective effort from all parties.
On the topic of local truck manufacturing, he said Isuzu Trucks South Africa had invested in several other initiatives to sustain its business in the country other than local production which required “massive capital expenditure.”
This included beneficiation downstream through training, focus on the parts business and enhanced dealer support services, among others.
He said a truck was an economic enabler and that the country required sound planning, execution and capital to grow its GDP.