Johannesburg - The new car market is heading for lower growth rates because of the significantly longer vehicle finance contract period customers are getting into, says vehicle and asset finance house WesBank.
Chris de Kock, the executive head of sales and marketing, said the longer vehicle finance contract period would eventually impact and lengthen the vehicle replacement cycle.
He said the average vehicle replacement cycle varied from 34-44 months.
He stressed that if the about 2 million active formal sector customers changed their vehicle replacement cycle to every four years from every three years, this would have a dramatic impact on the number of new cars sold every year.
De Kock said this was not evident in the replacement cycle but believed this had been averted by the massively competitive new vehicle sales environment and the willingness of manufacturers to provide incentives to enable customers to use their used car as a trade-in.
This had been driving new vehicle demand to levels that were out of sync with the financial position of customers and the state of the rest of the retail market, he said.
But he said it could not reoccur because consumers were in a worse financial position because they had borrowed more and financed the vehicle over a longer period, which meant the amortisation was shallower, and the gap between the price of new and used vehicles was widening.
De Kock said there had been a lack of supply of quality used vehicles over the past three years, which resulted in dealers paying handsomely for them, but this had turned around and used-car prices had dropped dramatically.
De Kock admitted that new customers, particularly in the emerging black middle class, could distort what happened in the new vehicle market.
Azar Jammine, the chief economist of Econometrix, said earlier this year that between 300 000 and 400 000 black Africans were entering the middle class each year, which was having a huge effect on buying power and providing continual “upside surprises” in new vehicle sales.
De Kock admitted there had been a shift in the ratio of black people and white people in WesBank’s loan book.
“In the early 2000s, the ratio was 65/35 [in favour of whites] but now it is 40/60 the other way round. That definitely supports the suggestion that new customers might be migrating out of the environment where they previously wouldn’t have been able to afford to finance a car where they are now able to do so,” he said. - Business Report