South Africans ditch new cars for used models priced under R200,000

TransUnion warns that manufacturers may be forced to hike new vehicle prices following the recent downgrades by ratings agencies Fitch and S&P Global.

It said that while the downgrades have not affected prices yet, a looming recession could put pressure on manufacturers who would be forced to pass on the hikes to consumers which will result in a contraction of vehicle sales, as more than 70% of vehicles are imported and subject to currency volatility.

“Should the rand depreciate to R16-R17 against the dollar, this will have an extremely negative effect on vehicle index for new cars,” TransUnion said.

“With the recent ratings downgrade to junk status we are expecting to see lower access to credit, a weakening currency, rising inflation and even higher interest rates. Consumers will have even less disposable income which will force individuals to hold onto their vehicles for longer instead of replacing them,” said Derick de Vries, CEO, Auto Information Solutions at TransUnion.

Read: How much money we spend when buying a new car in South Africa

For now however, the TransUnion SA Vehicle Pricing Index (VPI) shows an increase in pricing for new vehicles to 8.8% in Q1 of 2017, up from 6.6% in Q1 2016, while used vehicles prices have risen from 2.2% in Q1 2016 to 3.7% in Q1 2017.

A slight surge is evident in vehicle sales in this quarter and, according to National Association of Automobile Manufacturers South Africa (NAAMSA), there has been a yearly increase of 2.1% in passenger vehicles.

TransUnion noted that new passenger finance deals have increased by 27%. However, for every new vehicle, 2.49 used vehicles are financed.

Volkswagen and Toyota have captured more than 50% of the new car market, and lead the used car market as well, although there is not much difference separating the top tier from Ford, Hyundai and Mercedes-Benz, it said.

Notably, Hyundai is a popular choice in the used passenger segment, making up more than 9% of the market, while making up less than 3% of the new segment.

According to de Vries, overall, more vehicles from all sectors are being financed below R200,000 when compared to Q1 2016 and Q1 2017.

  • Sum of <R200,000 – 52%
  • Sum of R200,000 – R300,000 – 25%
  • Sum of >R300,000 – 23%

“This consumer shift opens up new possibilities for the industry in terms of used vehicles and it is worth noting that 40% of all used vehicles that were financed in this quarter were less than two years old. This 40% can be further broken down into 25% of vehicles that are under a year old, while 15% are under two years.

“But as the demand for used vehicles increases and supply comes under pressure this is likely to push the price up on used vehicles further and a shift back to the new car market,” de Vries said.


Read: South Africans turn to used cars, and ditch premium models for locally made ones

 

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