The South African car market saw a significant decline in the number of new and used cars financed in Q1 2020 as the market started feeling the effects of the Covid-19 pandemic.
This signalled a bleak forecast for the local automotive industry for the rest of the year, according to the latest TransUnion SA Vehicle Pricing Index (VPI).
The number of vehicles financed in Q1 2020 was 12% lower than the same period last year, with the month of March seeing a massive year-on-year decline of 35% for new vehicles and 31% for used vehicles.
This is despite new vehicle price increases staying under inflation for more than two years, TransUnion said.
The VPI for new vehicle pricing went up to 4% in Q1 from 2.3% a year ago, with the used vehicle index moving to 1.4% from 1.8% in 2019.
The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles which incorporates 15 top volume manufacturers.
The index is created using vehicle sales data from across the industry.
Kriben Reddy, vice president of auto information solutions for TransUnion Africa, said the Q1 VPI report painted a gloomy picture for the automotive industry for 2020.
With South Africa already in a recession at the end of 2019, pre-pandemic forecasts were that the car market would decline by between 3 and 5%, but the outbreak of Covid-19 could see new vehicle sales for 2020 fall even further.
“The positive indicators of petrol price decreases, interest rate drops, below-inflation vehicle price increases, dealer incentives and low inflation could not move consumers into new vehicle purchases in Q1.
“Consumers are currently uncertain on what the future holds through the current lockdown, with unemployment rate increases, negative exchange rate impact, negative annualised GDP growth rate, and Moody’s and Fitch’s rating downgrade all putting pressure on disposable income.
“This translates to low consumer confidence, which will cause consumers to hold off on big purchases,” said Reddy.
Those who are buying cars are increasingly buying used vehicles, TransUnion said. The VPI report shows the used-to-new vehicle ratio increased from 2.09 in Q4 2019 to 2.13 in Q1.
This means that for every new vehicle financed, 2.13 used vehicles are financed. In the used vehicle market, more than 35% of used vehicles are under two years old, with 6% of those being ex-demo models.
This indicates that consumers are opting for older vehicles as pressure on disposable income increases, TransUnion said.
The percentage of cars (new and used) being financed below R200,000, between R200,000 and R300,000, and over R300,000 has remained largely consistent, which shows that consumers’ purchasing power and their ability to purchase more expensive vehicles has not increased.
TransUnion said it expects this to remain consistent in the upcoming months as new vehicle prices increase.
Finance applications for 2020 Q1 did not see major declines, as the majority of applications took place before lockdown, but Reddy said there could be an increase in consumers rethinking purchasing decisions as they emerge from lockdown.
According to newly released research from TransUnion, almost eight in 10 South Africans (79%) say their household income has been negatively impacted by the Covid-19 pandemic, with an additional 9% saying they expect that their household income will suffer in the future.
“This is a tough time for car dealers, who must use this opportunity to make changes to remain competitive in a post-pandemic world.
“There’s a significant opportunity to look at new ways of generating income, and to bring more of a digital element to the car purchasing process to do business remotely and minimise physical contact with consumers,” said Reddy.
“Going forward, it could take the industry a year or more to recover, although we expect to see some creative marketing campaigns post-pandemic to try and ease the pressure.
“The use of payment holidays from the manufacturers may allow consumers to purchase vehicles with no instalment payable for up to six months as they recover from the financial impact of the pandemic, for example. One thing is for sure, though: the lockdown will impact the way that consumers and dealers do business in the future.”