How lower inflation and a weaker economy will hit car buying in South Africa

Credit bureau TransUnion has published its latest Vehicle Pricing Index (VPI), showing how South Africa’s weakened economy will impact car buying trends.

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.

The report shows that the percentage of cars (new and used) financed for less than R200,000, between R200,000 and R300,000, and over R300,000 has been fairly consistent.

“This shows that consumers’ purchasing power and their ability to purchase more expensive vehicles have increased marginally,” TransUnion said.

“Petrol price changes, interest rate changes, slower price increases, dealer incentives and lower inflation aren’t driving consumers to buy new vehicles.”

TransUnion said that consumers are still opting for entry-level vehicles, with the average loan size similar to that of Q2 2013. This further emphasises the pressure on consumers’ disposable income and the emergence of increasing demand for entry-level vehicles or older used vehicles.

It added that the 2020 outlook for new vehicle sales is stagnant at best against a backdrop of continued load-shedding by Eskom and Moody’s pending decision on South Africa’s investment rating.

“There is some good news for consumers entering the buying market with low inflation rates predicted for 2020, low price increases and incentives from dealers which range from trade assistance to vehicle discounts,” it said.

Price increases

TransUnion’s data shows that new vehicle price increases have remained below inflation for the last two years  – the longest consecutive period since the creation of the index in 2000.

It added that used vehicle price increases have also slowed down to 1.2% which is indicative that the used market is under strain.

The group’s data shows that finance houses are currently financing 2.09 used vehicles for every new vehicle. This follows the VPI trend of new car prices slowing down over the last year, it said.

South Africans feeling the pinch

Andrew Kirby, president and chief executive officer of Toyota South Africa Motors, believes that total vehicle sales for 2020 will continue the downward trajectory that began in 2013.

Speaking at the annual State of the Motor Industry (SOMI) in Kyalami recently (30 January), Kirby predicted only 515,000 vehicles will be sold in 2020, of which 339,900 are expected to be be passenger vehicles. This would mean a decline from 536,626 vehicles sold last year, of which 355,384 were passenger vehicles.

Ettienne le Roux, chief economist at Rand Merchant Bank (RMB), explained that South African consumers simply don’t have the discretionary spending to buy new cars.

“Over the past two or three years, consumer confidence has been low and spending has quite been conservative,” he said.

“This will, of course, affect local vehicle sales because buying a car is considered to be discretionary spending. Finances are really tight and the pressure consumers are feeling is quite significant.”

Dr Thabi Leoka, an independent economist who also sits on president Cyril Ramaphosa’s economic advisory panel, added that the current socio-political landscape is also not conducive to attracting investment.

“The house internally is dirty, and you are going out to the world to invite investors to come and eat in this house of chaos. We need to focus on cleaning this house first,” she said.

Read: New Toyota Corolla Quest – South African pricing

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How lower inflation and a weaker economy will hit car buying in South Africa