Credit bureau TransUnion has released its latest Vehicle Pricing Index (VPI), showing how the strengthening rand will affect car prices in South Africa.
The VPI examines the link between yearly increases in vehicle pricing for new and used vehicles, drawing data from a basket of passenger vehicles incorporated from the top 15 volume manufacturers.
It found that for the second consecutive quarter, new vehicle prices increased below inflation, and have dropped significantly from 9.4% in Q4 2016 to 2.4% at the end of 2017.
This was mostly due to a stronger rand in the second half of 2017, which allowed manufacturers to reduce new price increases, it said.
“The current market is experiencing the real effects of supply and demand,” said Kriben Reddy, head of TransUnion Auto.
“If we look at where we have come from, the weaker rand saw new vehicle prices increase above inflation in previous reports as input costs were higher.
“This significantly widened the pricing gap between new and used vehicles and shifted consumer demand more in favour of used vehicles. As we shift out of this market trend we will see a change in consumer behaviour as they take advantage in the drop of new vehicle prices,” he said.
This change from used to new vehicle purchases is also evident in the financing statistics. In Q4 2016, banks financed 2.5 used vehicles for every new vehicle, compared with 2.2 in Q4 2017.
“We expect this VPI trend to continue into 2018,” said Reddy.
“Looking forward we will see some exciting new model introductions in 2018 which will fuel the trend in new car sales growth of around 2%.
“Consumers will continue to place a large emphasis on value proposition when purchasing a new vehicle. Consequently, the less expensive passenger vehicles will continue to do well in the South African market,” he said.
In Q4 2016, 50% of vehicles financed were valued under R200,000, and in Q4 2017 this was just 40%, the report said.
Assuming the South African economy avoids a Moody’s downgrade in the next few months, Reddy believes there will be continued rand strength and a possible cut in interest rates, both of which will provide more downward pressure on vehicle prices, while increasing consumers’ willingness to spend.