Dear Friends,

July 2019 car sales as announced by ODD today , has shown significant contraction confirming the anxious forecasts of those who are involved in the sector . Car sales were down by 63% compared to July last year. The contraction in light commercial vehicle sales was even more severe as 76%. There was a 66% drop in total sales as month on month .

The shrinkage in sales were eventually stemmed from expiring SCT and VAT reductions as from July. Consequently , the shrinkage in sales has deepened further.
 
The message is very clear; prices have risen for tax reasons and sales have fallen proportionally again close to 3 times. The well-known flexibility formula worked again. The citizen couldn’t have bought a car, the sales organizations were suffered from operating expenses, production lines slowed down and finally, Government was unable to collect enough indirect taxes. So, the value chain has lost value.    

What will happen after that? Will it be possible this year to see picking up sales?

As you know, our country’s economy is an emerging economy with annual per capita income of around $ 9,600. The turnkey price of a base car is about 2 times that. Then there’s the need to find credit for individual sales. At this point, credit interest rates appear to be a very important factor. 
On 25 July 2019, our Central Bank has lowered interest rate by 425 bpts. With the help of Banks reacting to this, we see that monthly loan interest rates in automotive sales are down from 2% to around 1.60%.
Now here is the important point: The customer who needs credit wants to afford the monthly installment amount with his monthly income without difficulty. He also wants to believe that he can afford these installments during an average period of 3 consecutive years, meaning trust in the future. 
Apart from the down payment he can pay, we have repeatedly tested that to buy cars with instalments around TL 1000 a month would positively affect the sales . Even today, these amounts can be realistic in certain base model cars. To achieve this goal, the monthly interest rate in car sales campaigns needs to go down to 1%. 
Some public banks today launch interest rate campaigns as around 1% in residential sales, why not the same practice in car and light commercial sales? 
If we can manage that, you will see the gloomy atmosphere on car sales begins to disappear before the end of this year. We should never forget that credit interest is crucial in achieving sales of over 400 thousand at this year-end..

See you in my next articles.

PS. You may also follow my articles on motor1.com and otomobilhaber.com.tr