New data from TansUnion’s Vehicle Pricing Index (VPI) shows that prices of new cars have accelerated year-on-year to 6.8% in Q3 2022 from 3.8% in Q3 2021 – leading to motorists holding on to their cars for longer.
The VPI published by TransUnion uses monthly vehicle risk intelligence and sales data from thousands of dealers nationwide and financing registrations from all major banks and vehicle finance houses.
Despite the accelerated new vehicle prices in Q3 2022, the increase is still below the consumer price index (CPI), which crept up to 7.6% in October – with economists pointing to the significant depreciation of the rand over the course of 2022 as the culprit for the sharp increase in new vehicle prices.
Additionally, new data from the National Association of Automobile Manufacturers of South Africa (Naamsa) show a year-on-year increase of 18.2% in new vehicle sales –the eleventh consecutive month of year-on-year growth.
However, Naamsa and vehicle retailer Combined Motor Holdings (CMH) expect new vehicle sales to come under pressure as prices increase and inflation remains high with increasing interest rates.
“Growth prospects for the year’s balance remain constrained as higher interest rates and consequent higher debt servicing costs weigh on disposable income. As a consequence, single-digit growth in new vehicle sales could be expected for 2023,” said Naamsa.
CMH went even further to say that it expects new vehicle prices to increase by up to 10% within the next four months.
Consumers under pressure
Due to the seventh consecutive increase in interest rates since November 2021, high inflation, and rising fuel prices, consumers are feeling the pinch as they battle the current costs of living.
According to economists from Nedbank, south African households are increasingly turning to credit lines to help cope with the growing cost of living crisis in the country.
“Growth in private sector credit extension accelerated further to 9.7% year-on-year, the highest since December 2015, surpassing Nedbank’s and the market’s forecasts of 8% and 8.2%, respectively,” the bank said.
Nedbank added that other loans and advances, including unsecured credit, remained strong at 15.6% year on year.
Additionally, TransUnion vice president of auto information solutions Kriben Reddy said that its latest Consumer Pulse study revealed that more than half of South African consumers have slashed their spending and expect to cut discretionary spending even further in the coming months.
Used car market under pressure
As a result of the economic pressures consumers face, motorists are holding onto their vehicles for longer – increasing the price of second-hand cars as quality stock declines.
According to the VPI, used vehicle prices rose to 9% year-on-year in Q3 2022 from 5.9% in Q3 2021. The index showed that the used-to-new ratio of cars sold is now 2.1 – indicating that finance houses are financing 2.1 used vehicles for every new vehicle.
In numbers terms, TransUnion counted 81,045 used vehicles being financed over Q3 2022 compared to 39,589 new vehicles over the same period.
“In the used vehicle market, 25% of cars sold in 2022 were less than two years old, and this continues to decrease as the supply of quality used vehicles remains under pressure,” Reddy said.
Reddy believes that the increase in prices of second-hand vehicles has meant that new car purchases have become more attractive to car buyers.