Appraising the Fuel Price and Financial Risk Components Effects on Sales in the South African Automotive Industry


  • Thomas Habanabakize North-West University
  • Zandri Dickason-Koekemoer North West University


automotive industry; petrol price; financial risk; interest rate; South Africa


The automotive industry is one of the manufacturing sub-sectors that play a vital role in countries' economies. However, this industry is not exempt from the effect of fuel price and financial risk components. This study investigates the effect of fuel price and financial risk components on the South African motor trade sales for the period 2008-2021. The research is built on previous work and research on the linkage between fuel price and country risks. Auto-regression Distributed Lag (ARDL) model was applied to monthly financial data (exchange rate, interest rate), fuel price and motor trade sales. Findings suggested the presence of a long-run relationship among these variables. Findings suggested the presence of a long-run relationship among these variables. It was found that both interest rate and exchange rate have negative impacts on long-run motor trade sales. Nonetheless, the fuel price was found to be statistically insignificant to influence motor-trade sales in the long run. The results also indicated that both interest rate and exchange rate cannot impact motor trade sales in the short run. Based on these results, the study stressed that policies that strengthen and stabilise the South African currency (exchange rate) are imperative to increase sales in the automotive industry and economy in general. Easing and lowering interest rates can also assist in boosting motor trade sales irrespective of the fuel price. The paper uniquely provides the interactions between fuel price, financial risk and sales within the South African automotive industry. It also suggests strategies that can be implemented to improve sales within the aforementioned industry.


Ambe, I. M. (2014). Alignment Of Supply Chain Strategies And Practices Of Locally Made Vehicles In South Africa. The International Business & Economics Research Journal, 13(3), 637.

Arouri, M.E.D., Jouini, J. & Nguyen D.K. (2011). Volatility spillovers between oil prices and stock sector return: implications for portfolio management. International Journal of Money and Finance, 30, 1387-1405.

Automotive Industry Export Council (AIEC). (2019). Automotive export Manual 2019. Date of access: 30 Oct. 2019.

Avsar, V. & Turkcan, K. (2013). Exchange Rate Volatility and US Auto-Industry Exports: A Panel Cointegration Approach. International Journal of Economics and Financial Issues, 3(4), 772-787.

Barnes, J., Black, A., Comrie, D. & Hartogh, T. (2018). Geared for Growth: Geared for Growth South Africa’s automotive industry masterplan to 2035. The South African Department of Trade and Industry (the dti): Government of the Republic of South Africa.

Barumwete, L. A. & Rao, F. (2008). Exchange rate risk in the automobile industry: An empirical study on Swedish, French and German multinational companies. UMEA School of Business.

Baur, D. G. & Todorova, N. (2018). Automobile manufacturers, electric vehicles and the price of oil. Energy Economics, 74, 252-262.

Bronkhorst, E., Steyn, J. & Stiglingh, M. (2013). The Automotive Production and Development Programme: an analysis of the opinions of South African stakeholders. Journal of Applied Business Research, 29(5), 1281-1300.

Busse, M. R., Knittel, C. R. & Zettelmeyer, F. (2009). Pain at the pump: how gasoline prices affect automobile purchasing in new and used markets. NBER working paper, 15590.

Carley, S., Duncan, D., Esposito, D., Graham, J. D., Siddiki, S. & Zirogiannis, N. (2016). Rethinking Auto Fuel Economy Policy. School of Public and Environmental Affairs: Indiana University.

Chiloane, L., Botha, I. & Pretorius, M. (2014). The relationship between the exchange rate and the trade balance in South Africa. Journal of Economic and Financial Sciences, 7(2): 299-314.

Chisasa, J. & Dlamini, W. (2013). An empirical analysis of the Interest rate-vehicle purchase decision nexus in South Africa. International Business & Economics Research Journal (IBER), 12(5), 477-488.

Copeland, A., Hall, G. & Maccini, L. J. (2019). Interest rates and the market for new light vehicles. Journal of Money, Credit and Banking, 51(5), 1137-1168.

DeBord, M, & Rudegeair, P. (2014, September 3). US auto loans are surging as banks boost used car financing. Business Insider. Retrieved August 12, 2020.

Doyle, M. P. (1997). The effects of interest rates and taxes on new car prices. Board of Governors of the Federal Reserve System Finance and Econ. Disc. Series, 97-38.

Engle, R.F., Granger, C.W. (1987). Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276.

Feng, Q., Wang, Z. & Zeng, D. G. (2011). Household vehicle consumption forecasts in the United States, 2000 to 2025. International Journal of Market Research, 53(5), 593-618.

Frain, J. C. 2007. Small sample power of tests of normality when the alternative is a α-stable distribution. Dublin: Trinity College Dublin, Department of Economics. (TEP working paper no.0207).

Gordhan, P. (2012). Budget speech. Pretoria, South Africa.

IOL. 2018. Interest rate hike impacts vehicle sales. Retrieved August 17, 2020.

Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12,231-254.

Leard, B., Linn, J. & McConnell, V. 2017. Fuel prices, new vehicle fuel economy, and implications for attribute-based standards. Journal of the Association of Environmental and Resource Economists, 4(3), 659-700.

Ludvigson, S. 1998. The Channel of Monetary Transmission to Demand: Evidence from the Market for Automobile Credit, Journal of Money, Credit and Banking, 30(3): 365-383.

Maia, J. and Hanival S. 2013., An Overview of the Performance of the South African Economy since 1994. Pretoria: Presidency of South Africa.

Mall, Z., Jafarey, S., Syed, S. H. and Hussain, I., 2011. Exchange Rate Exposure on the Automotive Industry: Evidence from USA and Japan. Forman Journal of Economic Studies, 7, pp. 25-54.

McManus, W., 2007. The link between gasoline prices and vehicle sales: Economic theory trumps conventional Detroit wisdom. Business Economics, 42(1), pp. 53-60.

Country Commercial Guide. 2021. This is a best prospect industry sector for this country. Includes a market overview and trade data. National Association of Automobile Manufacturers of South Africa

Pesarn,M.H, Shin,Y. and Smith,R.J., 2001. Bounds testing approaches to the analysis of Level relationships. Journal of Applied Econometrics 16, pp. 289-326.

Phillips, P. C. and Hansen, B. E. 1990. Statistical inference in instrumental variables regression with I (1) processes. The Review of Economic Studies, 57(1), pp. 99-125.

Rasche, R. and Tatom, J., 1977. The effects of the new energy regime on economic capacity, prodction and prices. Federal Reserve Bank of Louis Review 59(4), pp.2-12.

Shapiro, A. C., 1975. Exchange rate changes, inflation, and the value of the multinational corporation. The Journal of Finance, 30(2), pp.485-502.

Shapiro, A. C., 1992. Multinational Financial Management. 4th ed. Boston: Wiley.

Statistics South Africa (STATS SA) (2018). Discussion document on South Africa’s motor trade industry. Discussion document: D6301. Pretoria: Statistic South Africa.

Thorbecke, W., 2008. The Effect of Exchange Rate Volatility on Fragmentation in East Asia: Evidence from the Electronics Industry. Journal of the Japanese International Economics, 22, pp. 535-544

Van der Post, J., 2018. SEE: Rising fuel prices a significant contributor to declining car sales' – TransUnion. Weels24.

Venter, I., 2018. Auto exports earned South Africa R165bn in 2017 [Online]. Available at: <> [Accessed on 30 October. 2019].

Williamson, R., 2001. Exchange rate exposure and competition: evidence from the automotive industry. Journal of Financial Economics, 59, pp. 441- 475.

Wonder, N., Wilhelm, W. and Fewings, D., 2008. The financial rationality of consumer loan choices: Revealed preferences concerning interest rates, down payments, contract length and rebates. The Journal of Consumer Affairs, 42(2), pp. 243-270.






Business Administration and Business Economics