South Africans are taking longer to pay off their cars

South Africa’s new vehicle sales are set to decline by 3.5% in 2020 as motorists plan to hold onto their cars for longer in tough economic conditions.

WesBank chief executive Chris de Kock said that 2020 is expected to be another challenging year for the motor industry, driven by low demand from both the retail and corporate market.

De Kock said that affordability remains the number one factor influencing new car buying decisions in South African households.

Rand fluctuations, volatile fuel prices, the inevitable rise of electricity and other utility costs, a possible increase in VAT and rampant unemployment figures continue to have an impact, he said.

In the short term, this will drive the trend of consumers buying down (opting for cheaper derivatives), and continue to create demand for used cars.

In light of buyers’ sensitivity to expenses, people are also holding on to their vehicles for longer.

WesBank’s average deal now runs for 45 months – just under four years – up from the traditional three-year buying cycle that the vehicle industry has become accustomed to.

“This will continue to put pressure on new vehicle sales during 2020,” said de Kock.

“South Africa is not alone in this predicament; the sale of vehicles globally fell sharply in 2019 after a modest fall in 2018, and are expected to fall again in 2020. This follows almost a decade of growth since the financial crisis, reflecting the pressure on the global economy,” he said.

De Kock said a 3.5% decline would mean a reduction of 18,626 sales across all categories.  He said the decline would come from passenger cars and light commercial vehicles.

“As always, the new passenger vehicle category will contribute to the largest decline, with an expected 345,000 units to be sold this year (-2.9%). However, light commercial vehicles will fall by the highest percentage given its exposure to the sluggish business side of the economy.

“We anticipate sales of 146,000 units, translating to a decline of 4.7%. The medium and heavy commercial segments will similarly not be spared, with reductions of  -2.51% (8 500 units) and -4.31% (18 500 units) respectively.”

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