Pre COVID-19, South Africa was already experiencing low consumer confidence, low economic growth and high unemployment. In 2020, with the emergence of COVID-19 and measures implemented to control the virus, South Africa’s real GDP declined into a deep recession, and unemployment rose above 30% by the end of the year.
Luxury cars produced locally by leading international players such as Mercedes-Benz, Bayerische Motoren Werke (BMW) and Volkswagen saw the interruption of their production at the start of the COVID-19 outbreak in South Africa during Q2 2020. Luxury car dealerships also closed during the second quarter of 2020, which negatively impacted sales.
Most retail value sales of premium and luxury cars are accounted for by the leading four brands, namely Mercedes-Benz, BMW, Audi and Land Rover. These brands continue to offer a wide range of premium and luxury cars to cater for different price points in the luxury segment.
Due to strict COVID-19 safety protocol measures and social distancing requirements, luxury car dealerships had limited physical showroom hours during Q2 of 2020, and therefore began enhancing their websites to offer a virtual showroom experience. More visual imagery, customised colour palettes for luxury cars, model ranges and price discounts were offered to improve the consumer online experience and attract new sales leads.
Record-low interest rates, large discounts and price deals on luxury cars and extended warranties are likely to be amongst the factors helping luxury cars to see sluggish recovery in the forecast period, despite the strong influence of the pandemic. In particular, The Reserve Bank of South Africa announced a record low repo interest rate of 3.
Nevertheless, the deep recessionary economic situation, economic uncertainty, high unemployment, low sovereign debt rating and depleted consumer incomes will continue to have a negative impact on consumer spending on premium and luxury cars. Multiple luxury car models are imported into the country, impacted by devaluation of the rand against major currencies, placing upwards pressure on luxury car prices.
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