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New, used car prices up, with dim outlook

Economy
Cape Town - South Africa saw a spike in both new and used vehicles pricing during this year’s first quarter, despite mounting political uncertainty.

This is according to the latest TransUnion SA Vehicle Pricing Index (VPI) released on Thursday.

The report examines the link between the year-on-year increase in vehicle pricing for new and used vehicles, drawing data from a basket of passenger vehicles incorporated from the top 15 volume manufacturers and data collected from across the industry, which is used to create the VPI.

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The weak rand resulting from the economic downgrades to junk status is expected to impact new car sales. Photo: Henk Kruger

The report showed an increase in pricing for new vehicles to 8.8 percent, up from 6.6 percent in last year’s first quarter, while used prices have risen from 2.2 percent during last year’s first quarter to 3.7 percent in this year’s first quarter.

The report showed that Volkswagen and Toyota captured more than 50 percent of the new car market and lead the used car market as well, although there was not much difference separating the top tier from Ford, Hyundai and Mercedes-Benz.

The report said the further increase in new vehicle pricing can be attributed to domestic reliance on high volumes of imported vehicles that are subject to currency volatility.

Read also: Car buyers shifting to used vehicles

Derick de Vries, the chief executive for auto information solutions at TransUnion, said with the recent ratings downgrade to junk status, South Africa could expect lower access to credit, a weakening currency, rising inflation and higher interest rates.

“Consumers will have even less disposable income, which will force individuals to hold onto their vehicles for longer instead of replacing them.”

New finance

De Vries said financial registration data had shown an upswing in consumer interest for used vehicles with an increase of 26percent in new finance deals this quarter, while new passenger finance deals increased by 27 percent and the ratio between new and used vehicles financed had decreased from 2.5 percent to 2.49 percent from last year’s fourth quarter to this year’s first quarter.

“Another continuing trend is that the percentage of cars, both new and used, being financed under R200 000, remains constant from last quarter, showing consumers are ‘buying down’ and looking for more value for their money.

However, this consumer shift opens up new possibilities and it is worth noting that 40 percent of all used vehicles that were financed in this quarter were less than two years old.

De Vries said, however, that as the demand for used vehicles increased and supply came under pressure, it was likely to push the price up on used vehicles further and a shift back to the new car market.

He said manufacturers might be forced to pass on the higher pricing to consumers, which would result in a contraction of vehicle sales, as more than 70 percent of vehicles are imported and subject to currency volatility.

“Consumers also might be faced with increased short-term insurance premiums as a result of increased repair costs based on the fact that 70 percent of parts are imported and subject to currency volatility.

Read also: New vehicle sales point to economic turnaround

“It’s difficult not to have a negative outlook for the medium- to long-term future, given our current economic reality.”

Neliswe Baloyi, the head of Absa Vehicle and Asset Finance, said that while the finance house had not seen the immediate impact of the downgrade, it would be potentially devastating and far-reaching for the consumer and economy going forward.

She said there was a correlation between the economic performance of the country and the vehicle sector, and deteriorating exchange rates and interest rates would increase the cost of vehicles and the cost of credit to the consumer.

“The cost of new vehicles has in the past three months seen an increasing consumer preference to second hand vehicles, and the impact of the downgrades on the cost of imports, will see this trend further entrenching and may create its own cycle of increased prices of used vehicles due to supply and demand factors.”

Prudence

Baloyi said South Africa’s downgrade will impact the consumer, above all, and prudence would need to be key.

She said the consumer sector was forecast to face continued financial pressure this year against the background of trends and the outlook for the economy, which would have a negative impact on consumer confidence, vehicle sales and the demand for and growth in vehicle finance.

Baloyi said household finances remained finely balanced against the background of debt levels and a significant percentage of credit active consumers having impaired credit records.

“Fuel prices and vehicle maintenance costs drive transport costs and consumer price inflation, impacting consumer and business spending power.

Rudolf Mahoney, the head of brand and communications at WesBank, said during the first three months of this year new vehicle sales were positive, with the year-to-date growth of 1.9 percent.

Mahoney said, however, that the cabinet reshuffle and subsequent credit downgrades have had a negative impact on the rand, which would impact the sales of new vehicles, the majority of which are imported.

“WesBank expects a shift to the used car market. Over the past two years, demand for used vehicles has increased dramatically. In March 2015, the ratio of used-to-new applications was 2:1, and in March 2017 this ratio was 2.4:1,” Mahoney said.

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