Car buyers in South Africa move to fixed-rate deals in post-lockdown trade

The new vehicle market returned to its first full month of sales in June since lockdown commenced. However, a return to pre-Covid-19 sales remains some way off.

New vehicle sales for June did show signs of recovery as the entire motor industry returned to business under Level 3 regulations. Some of the industry had begun operating again during May under more stringent Level 4 conditions.

New data from the National Association of Automobile Manufacturers of South Africa (Naamsa), shows that new vehicle sales declined 30.7% year-on-year in June, a drop of 14,086 units to 31,867.

Vehicle finance firm, Wesbank said that there is demand again, citing its application data which was active at levels experienced towards the end of last year and at higher volumes than June 2019.

“There were a number of key changes to market behaviour that could be the beginning of new trends as car buyers adapt to short-term budget pressures as a result of the pandemic,” said Lebogang Gaoaketse, head of marketing and Communication at WesBank.

“We expect these may become longer-term changes as the impact of Covid-19 ripples through the value chain and vehicle purchase decisions face new fundamental foundations.”

Most notable of these was the uptake of fixed rate deals, an opportunity provided by the particularly low interest rate environment, Wesbank said. South Africans have enjoyed a 2.5% reduction in interest rates since March, providing relief for indebted customers, it said.

While rates will inevitably need to increase again in the short- to medium-term as outlined in the Supplementary Budget, consumers and business have taken advantage of the opportunity on new deals during June.

WesBank said that its average deal size has also increased substantially.

“Increases in deal size between 10 and 15% across new and used vehicles compared to June last year either indicates a stronger appetite or demand for quality stock based on price inflation, or an increase in the portion of debt in every deal,” said Gaoaketse.

Passenger car sales declined 33.4% to 19,264 units. To understand the very real impact that represents, June 2019 passenger car volumes ran to 28,931 cars, meaning nearly 10,000 deals were lost to the trade.

Light Commercial Vehicles (LCVs) were down 29.7% to 10,189 units.

“Market activity is expected to remain low for the remainder of the year as the uncertainties of the pandemic continue to bring pressure to bear, for consumers and business alike,” said Gaoaketse.

“Household budgets were already under pressure before the lockdown and within an economy that is now expected to shrink 7.2%, many potential buyers will delay their purchase decisions.”

The used car market is expected to continue to show higher levels of demand, providing better levels of affordability. However, some analysts expect to see an increase in used car values as a result.

“June sales begin to provide a picture of what to expect for the remainder of the year,” said Gaoaketse.

“While that picture provides many challenges for both buyers and sellers, it includes positive elements that will test the industry’s resilience to survive.”

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Car buyers in South Africa move to fixed-rate deals in post-lockdown trade