Big shift for car prices and the used car market in South Africa

 ·3 May 2024

Although challenging economic conditions, inflation, and fuel hikes are the primary reasons why car buyers are turning to the used vehicle market, inflation-busting price hikes are now causing consumers to reconsider the second-hand option.

TransUnion’s latest Vehicle Pricing Index (VPI) shows that both new and used vehicle prices have experienced, on average, an above-inflation increase of 6.3% and 6.4% in Q4 2023, respectively (3% above inflation).

Notably, the report showed that older cars (>three years old) showed an even more significant price increase, rising between 14.6% and 16.7%.

According to the report, the percentage of cars—both new and used—being financed below R200,000 declined to 18% in Q4 2023 from 19% in Q4 2022, likely due to the increased average purchase price of new vehicles, leaving prospective buyers little choice in this price band.

The data further found that 27% of vehicle financing deals were for cars between R200,000 and R300,000, and 55% shopped for cars over R300,000

TransUnion noted that this is a result of rising vehicle prices, with consumers forced to spend more for a reliable vehicle, while those in the used vehicle market moved to older cars to meet their needs.

“The average financed amount for vehicles rose to R396,000 in Q4 2023 from R386,000 the previous year, reflecting a growing market trend,” it said.

The country’s pre-owned sector has taken off amid higher fuel prices and a challenging economic environment.

However, the data also indicated that the Used-to-New Ratio declined to 1.2, indicating the finance houses are financing 1.2 used vehicles for every 1 new vehicle (dropping notably from 1.9 in Q4 2022).

Transunion noted that this marks a significant shift in consumer behaviour, potentially driven by increased confidence, vehicle availability, and the financial practicality of opting for new over used vehicles, as buyers no longer find enough value in the pre-owned market, given the price pressures.

“The South African vehicle market is navigating challenges predominantly rooted in a tough economic environment characterised by escalating inflation, higher fuel costs and currency fluctuations.

“These factors contributed to a noticeable decline in vehicle sales, marked by more than a 4% decrease in financed vehicles and a 6.3% reduction in new passenger vehicle sales,” it said.

Transunion added that economic constraints led many consumers to increasingly opt for more cost-effective mobility options, including even older, less expensive, used vehicles and alternative financing models.

This trend is evident in the changing demographics of vehicle financing — marked by a decrease.

“Nonetheless, the market is witnessing a glimmer of hope as manufacturers introduce discounts and incentives, potentially facilitating market recovery and growth despite prevailing economic adversities,” it said.

Read: The most expensive province for car licences in South Africa

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