Under the hood: What auto finance auctions tell us about SA credit

The South African automotive sector delivered a strong performance in 2025, with new vehicle sales rising 15.7% year-on-year. The central driver was the SA Reserve Bank’s cumulative 150 basis points (bps) of rate cuts between September 2024 and November 2025, which reduced the prime lending rate from 11.75% to 10.25%.

For auto finance, this easing cycle had a direct impact: broadening the pool of qualifying borrowers, reducing repayment stress on existing loan holders, and supporting both volume growth and book quality.

Additional tailwinds included the two-pot retirement system, which injected temporary liquidity into the consumer market, and South Africa’s removal from the Financial Action Task Force (FATF) grey list in late 2025, improving access to international capital markets.

An import-dominated market

A defining structural feature of SA’s vehicle market is its export orientation. While the country manufactures vehicles primarily for export to Europe and the US, the domestic market is dominated by imports from markets such as India and China. According to Reuters, imported vehicles accounted for 62.8% of new light vehicles sales in 2024, rising to 69.3% in 2025.

The import share reflects production location rather than brand ownership, with locally manufactured vehicles classified as domestic. As a result, demand for high-volume models produced in South Africa by global original equipment manufacturers (OEMs) like Toyota is excluded from the import figure.

New energy vehicles (NEVs)

While NEV penetration remains marginal at 2.8% of total sales, according to Naamsa figures sales in this category have grown significantly, from 4 674 units in 2022 to 16 716 units in 2025. This is dominated by hybrid models (85% of the NEV mix), according to the AutoTrader 2025 Industry Report.

Battery electric vehicle (BEV) adoption remains constrained by limited charging infrastructure, distance range anxiety and affordability challenges. On the export front, the European Union’s revised emissions regulations (including extended compliance timelines and the introduction of three-year emission averaging) have effectively bought SA manufacturers additional time to transition production toward hybrid models.

The US tariff and AGOA shock

The most significant structural disruption emerged in April 2025, when the United States imposed a 25% Section 232 tariff on all vehicle imports, coinciding with the expiry of the African Growth and Opportunity Act (AGOA) on 30 September 2025. Although the AGOA was renewed in December 2025, South African automotive exports to the US declined sharply, falling by 74.3%.

By contrast, the industry’s pivot towards Europe has been remarkably successful with exports growing 12.5% to 332,695 units during 2025, and accounting for 80% of all SA vehicle exports.

A “buying-down” trend takes hold

Since 2022, the SA vehicle market has undergone a structural shift in consumer behaviour. Households have increasingly been substituting premium or mid-range vehicles for more affordable alternatives.

This has included a shift from new to used vehicles, as well as a growing uptake of competitively priced Chinese and Indian brands offering comparable specifications at significantly lower price points.

Major OEMs raising financing through the SA Debt Capital Market

Toyota, Volkswagen, BMW, Ford, Isuzu, Mercedes-Benz and Nissan are among the major original equipment manufacturers (OEMs) operating in South Africa. However, the entities raising debt finance in the SA listed debt capital market (DCM) are limited and concentrated in the financing arms rather than the manufacturing entities themselves.

Key issuers include Toyota Financial Services South Africa (TFSSA), Daimler Trucks Southern Africa Limited (DTSA), Scania Finance Southern Africa (SFSA) and Mercedes-Benz SA (MBSA).

These entities act as the primary conduit through which institutional investors gain exposure to South African vehicle credit, issuing senior, unsecured notes under domestic medium-term note (DMTN) programmes listed on the Johannesburg Stock Exchange.

Auto finance subsidiaries provide vehicle finance, insurance and fleet management services linked to their parent OEM brands, representing the financial services dimension of the automotive investment case rather than direct manufacturing exposure.

How SA auto finance issuers position themselves

A defining credit feature of South African auto finance entities is the presence of parental guarantee structures. In most cases, the global OEM holding company or treasury arm provides either a full guarantee or formal support agreement to the local subsidiary.

These guarantees derisk the South African operating entity from standalone domestic risk factors. In cases where the parent carries an international investment-grade rating, national-scale issuance by an auto finance subsidiary effectively allows local investors to access global OEM credit quality at rand-denominated yields. As a result, such issuers typically achieve national scale ratings at the upper end of the spectrum, often at zaAAA or zaAA+ by external rating agencies, reflecting the strength of the parental credit enhancement.

SA auto finance DMTN issuances have historically priced tighter than equivalent tenor-bank debt, reflecting this structural support. The rate-cutting cycle in late 2024 through 2025 further compressed overall JIBAR spreads across the broader credit market, with auto finance entities benefitting from high credit ratings and strengthening loan book performance.

Listed debt issuance

Since 2020, four issuers have collectively placed just over R39 billion in listed debt across nearly 60 bond issuances (including private placements). DTSA entered the market in June 2022 following Daimler’s separation of its trucking business (Daimler Trucks) and has since emerged as the most active issuer by volume. SFSA has relied more heavily on private placements and remains the smallest issuer within the peer group.

Graph 1: Annual DMTN issuance by issuer

Source: Standard Bank South Africa Research/Futuregrowth

*2025 year-to-date through October. SFSA notes are unlisted (settled via Strate Converge)

Total sector issuance has averaged approximately R3.5-R9 billion per annum since 2020, making auto finance one of the most active corporate segments within the domestic DCM. The balance has shifted from MBSA-dominated (pre-2022) to a more evenly distributed four-issuer ecosystem.

Auction dynamics and bank participation

Primary market auctions in the auto finance sector have consistently exhibited strong oversubscription, with cover ratios ranging from 1.4x to over 6x. This reflects excess liquidity in the market and sustained demand for high-quality, liquid credit.

Banks play a significant role in this dynamic, given that these instruments qualify as High Quality Liquid Assets – a regulatory requirement. While banks typically account for between 10% and 43% of bids, their allocation often exceeds this proportion, indicating more competitive pricing behaviour relative to institutional investors.

Private placements

As previously noted, auto finance entities also raise debt via private placements (PP). Graph 2 below illustrates the ratio of public auctions to PP volumes for DTSA, MBSA and TFSSA combined.

The trend since the onset of COVID-19 shows that PP volumes have declined as a percentage of total debt issuance. This suggests that issuers may be favouring the primary market, which is highly competitive and can result in lower clearing spreads.

Graph 2: Auction vs private placement volume

Source: Standard Bank SA Research/Futuregrowth

*Limited data on SFSA

Spread compression

One of the most striking features of the market has been the sustained and material spread compression across all three issuers. Since 2022/23, three-year auction spreads have tightened by 25–35bps. This repricing reflects a combination of factors, including the

SA Reserve Bank’s rate cutting cycle, growing investor familiarity with these credits, the continued anchoring effect of parental guarantees and the supply-demand imbalances in the DCM.

Another key tension is spread adequacy. Bank participation has structurally compressed pricing, particularly at the three-year point, with clearing spreads consistently coming in at or below guidance.

A shifting risk landscape

As South Africa’s automotive sector enters 2026, it faces a clear duality. Domestically, the interest rate relief delivered over the past easing cycle, alongside improved logistics, stronger household balance sheets and resilient consumer demand continues to provide support.

Globally, conditions are less supportive. Trade friction, evolving tariff regimes, shifting electric vehicle (EV) timelines and subdued growth continue to weigh on the outlook for export-oriented manufacturers. Export recovery – particularly to the US – will depend on progress in tariff negotiations, improved EV readiness and sustained investment in port and logistics infrastructure.

Heightened geopolitical tensions, including the recent escalation in the US-Iran conflict, have added further uncertainty through potential disruption to global supply chains, upward pressure on oil prices and consequently renewed inflationary risk.

Read: Banks’ FLAC debut powers a record Q1 for SA debt markets

Within the domestic auto finance universe, sensitivity to these pressures is uneven. Retail-focused loan books such as those of TFSSA and MBSA, are more exposed to household affordability dynamics. Sustained increases in fuel costs and the risk of renewed rate hikes could erode disposable income, unwind some of the affordability gains delivered by the recent easing cycle and place pressure on newly originated loans.

By contrast, DTSA and SFSA's corporate-focused borrowers are supported by the revenue-generating nature of commercial vehicles. That said, fuel remains a significant operating cost for transport operators and persistently elevated diesel prices could compress margins, specifically for smaller owner-operators with limited balance sheet flexibility, potentially delaying fleet replacement or expansion.

As an active participant in the domestic debt capital market, Futuregrowth continues to monitor global and domestic developments and their implications for counterparty creditworthiness.

With spreads materially tighter, the key question for investors is whether current pricing adequately compensates for emerging risks and headwinds in a market increasingly shaped by bank-driven demand.