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The strengthening of the rand against other currencies is “good news” for consumers when it comes to the price of new vehicles.

Toyota South Africa Motors (TSAM) president and CEO Andrew Kirby said on Thursday that Toyota tries to avoid price reductions because of the negative consequences such cuts could have on existing customers.

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Instead, Kirby explained, the company seeks to offset inflationary increases in input costs for new vehicles.

“We’ve been very aggressive in not pricing in the last two years and taking minimal pricing,” he said on the sidelines of TSAM’s annual State of the Motor Industry briefing.

Inflation management

Kirby said the strength of the rand is definitely going to help with new vehicle pricing, but there is a lagged effect because of the lead time with the supply of imported components compared to when they sell vehicles in the domestic market.

“We are not seeing the benefit of the strong rand yet. It’s still coming through.

“As that comes through, we are hoping that we will be able to restrict what would normally be an inflationary-linked price increase,” he said.

In the past, when the rand has been depreciating in value, vehicle manufacturers have sometimes announced quarterly price increases.

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Kirby added that TSAM’s pricing is linked not only to the consumer price index but also to commodity prices, such as steel, while transport costs also have quite a big impact on their business.

“But we do forecast that we will be able to limit price increases as a result of the strength of the rand, so I do think it’s good news for the end consumer,” he said.

High tax burden 

Justin Barnes, executive director of the Toyota Wessels Institute for Manufacturing Studies (TWIMS), said an inconvenient fact is that the average tax on a South African vehicle is R120 000, which means that when a consumer buys an average car, R120 000 is being handed over to the government in the form of value-added tax (Vat), ad valorem tax, carbon tax and the tyre levy.

Barnes added that the tax burden on a car costing over R800 000 is 34%.

“The government secures huge fiscal benefits from the automotive market. If that market declines, it is going to have serious fiscal consequences in terms of the revenue flowing into the government,” he said.

But Barnes said there are also serious economic consequences for the industry if it is overtaxed or if the market is being penetrated too aggressively by imported vehicles that do not have the underlying value addition.

This is a reference to the recent influx of cheaper imported vehicles into the South African market, particularly from India and China.

Barnes added that South Africa’s automotive industry creates R120 billion worth of direct gross value added just through seven vehicle assemblers.

He said the government is trying to balance the tension between what is good for production and ensuring the market is not negatively affected by creating too much protection for the local industry that would allow for some form of price advantage that the consumer ultimately has to bear.

Kirby said the tax paid on new vehicles is historical but “it needs to be looked at”.

He noted that while the automotive industry receives strong industrial policy support, another arm of government taxes the sector disproportionately.

“Unfortunately, there is a discord between the different organs of state,” he said. This is a reference to the Department of Trade, Industry and Competition (dtic), which develops policy for the automotive industry, while National Treasury is responsible for taxation issues.

Vehicle sales

Kirby was bullish about total new vehicle sales in 2026, forecasting a growth of 5.5% to 630 000 units.

In 2025, total industry sales grew by 15.7% to 596 818 units, finally surpassing pre-Covid-19 levels recorded in 2019.

Kirby said the seasonally adjusted annual rate of growth in new vehicle sales in January 2026 was just under 600 000 units, which means it is forecasting that sales in the second half of the year will be much higher than in the first half.

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Kirby highlighted that there was “artificial growth” in new vehicle sales in 2025. He said GDP growth of 3.5% would have been needed for the industry to achieve a net increase of 15.7% in new vehicle sales, and average prices remained the same.

However, Kirby said South Africa only achieved GDP growth of 1.2% last year.

“Essentially what happened last year is that the A-segment, or entry-level market, grew faster than the other segments – the B, sub-B, C and D volume segments of the passenger car market – [and] within each of the segments, it was the entry-level models that grew faster than all the others.

“It created artificial growth in volumes. If you look at the true value, we did not grow by 15.7% at all, and this reflects just how constrained consumer spending is.

“There are some green shoots [in new vehicle sales] but we need to put that 15.7% in perspective,” he said.

Kirby also expressed concern about new vehicle exports, despite the industry achieving record export sales of 400 000 units in 2025.

He said South African new vehicle exports to the European Union (EU) and UK are expected to decline because of regulation changes in that market related to their zero-emissions vehicle policies.

Kirby said this will make it very difficult for South Africa’s automotive industry to sustain export volumes at current levels. “We are most likely in the next five years going to see a significant decline in exports to Europe and the UK,” he said.

Local manufacturing

Kirby added that to improve the competitiveness of South Africa’s automotive industry, domestic policies need to adapt to the changes in the world, improve the competitiveness of completely knocked-down (CKD) manufacturing, and move back to a situation where between 40% to 50% of the vehicles sold in South Africa are manufactured locally.

He noted that only 33% of all vehicles sold in South Africa in 2025 were locally manufactured.

Kirby emphasised that the automotive industry also needs to transition quickly to new energy vehicles (NEVs), which will require government support and targeted interventions.

He stressed that responding promptly to the challenges posed by declining export volumes and structural issues through policy measures “is now absolutely crucial”.

“If we make the right small changes in the right way, creating the right investor confidence, we have the potential to increase vehicles sold to the domestic market by 20% and vehicle exports by 20%, which would generate R21 billion in manufacturing value addition to the South African economy.

“That is significant and we can generate 14 500 direct jobs,” he said.

This article was republished from Moneyweb. Read the original here.

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