The rising cost of owning a car in South Africa – and how much it has changed
Cash-strapped South Africans are feeling the pinch as the prices of vehicles continue to rise, with some segments even beating inflation in the first quarter of 2023.
TransUnion has released its latest Vehicle Pricing Index (VPI), showing that the South African car market came under renewed pressure in the first quarter of 2023 as the effects of fuel hikes, inflation, challenging economic conditions and load-shedding took their toll.
The index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles incorporating 15 top-volume manufacturers.
TransUnion’s data showed that the South African vehicle market faced significant challenges as total financial agreement volumes in passenger vehicles decreased by 12% from Q1 2022 to Q1 2023.
This includes a decline in new vehicle finance deals of 2.6% YoY, while used vehicle finance deals decreased by 17.7% YoY.
According to the credit agency, this volume slump is partly due to rising vehicle prices, which exceeded wage growth, and diminishing disposable incomes.
According to the report, the price of new vehicles, on average, increased by 6.3% in Q1 2023.
While this is below inflation (CPI) – recorded at 7% over the same period – the price increases in three segments exceeded CPI, and the price of all new vehicles is forecasted to increase in the coming months, noted the report.
On average, the price of medium SUVs increased by 11.4% in Q1 2023, while the price of Crossovers and small SUVs increased by 7.7% and 7.1%, respectively.
Adding to the challenges of owning a car is that used-vehicle prices have experienced, on average, a more significant increase than new cars, with the report recording a price increase of 8.1% in Q1 2023 (1.1% above inflation).
TransUnion SA noted that this resulted from car owners holding on to their vehicles for longer due to financial pressures, leading to a shortage of high-quality used cars.
Interestingly, the report also showed that older cars (three years old) showed an even greater price increase – with prices rising between 9% and 14.2%.
According to several industry experts, the steady increase in vehicle prices can be attributed to multiple factors, including inflation, currency fluctuations of the rand, and supply chain disruptions. The global shortage of semiconductors has also driven up prices as automakers struggle to meet demand.
The true cost of car ownership
Wesbank also noted with concern the financial pressures South Africans are under, with a particular focus on the ramifications of a potential tenth consecutive interest rate hike at the end of May 2023.
“Another increase in the repo rate would again negatively affect home and vehicle owners, especially in an economic climate where fuel, electricity and living expenses are also on the rise,” said WesBank.
To understand the actual increase in car ownership in South Africa, WesBank compared the total cost of vehicle ownership over the past five years, from 2019 to May 2023.
For this exercise, WesBank took its average vehicle financing amount (approx. R280,000), which travels approximately 2,500 kilometres per month. It also included the average running costs of the vehicle, which included:
- Monthly net instalment due;
- Monthly fuel cost;
- Monthly insurance; and
- Monthly running cost (maintenance).
According to WesBank’s estimates, the actual cost of ownership has increased by 14% since November 2022 alone, from R10,165 in 2022 to R11,628 in May 2023.
However, over the five years, the cost of car ownership has increased by a staggering 48% since pre-Covid 2019, when the monthly mobility cost averaged R7,851.
* It is important to note that this monthly total cost of vehicle ownership table is based on data that constantly shifts in relation to market activity and is thus intended as a guideline only.
In May 2023, vehicle instalments and fuel spend remain the largest portions of the basket, accounting for 81% of the monthly spend.
Fuel spend accounts for 35% of the total, with the vehicle instalment at 46% due to the spate of interest rate hikes over the past year. The monthly insurance cost of R1,740 makes up 15%, with monthly running costs accounting for the final 4% at R493.
The percentage breakdowns remain similar to those in 2019, where fuel spend accounted for 35% of the total at R2,732, while the average vehicle instalment was 45% at R3,565.
“The figures up to May 2023 are further evidence of the wide-reaching impact of global and local influences on the total cost of vehicle ownership, such as the war in Ukraine and chip shortages affecting production,” said WesBank.
“Another interest rate hike will have a ripple effect across all sectors of the economy, and South Africans are not unaffected by this higher cost of borrowing, particularly those customers who have opted for a linked rate as their monthly car repayments continue to rise,” added Lebogang Gaoaketse, Head of Marketing and Communication at WesBank.
Read: How much South Africans spend on petrol vs the UK, Switzerland, USA, and others
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