Johannesburg - Higher new vehicle prices are increasingly pushing consumers towards the used vehicle market.
The latest TransUnion vehicle pricing index released this week revealed the price of new vehicles increased substantially in the first quarter of this year.
TransUnion said new vehicle prices increased by 6.6 percent in the first quarter compared with 4.6 percent in the fourth quarter of last year. Used vehicle prices rose by 2.2 percent compared with 1.1 percent in the same period.
Derick de Vries, the chief executive of Auto Information Solutions at TransUnion, said the index indicated that consumers were enduring substantial increases on both new and used vehicles, with price hikes higher than the consumer price index on new cars.
“These higher new car prices will push consumers towards used vehicles, to buy down within the new space and will also force some consumers out of the market as they will tend to hold on to their vehicles for longer than they normally would,” he said.
De Vries said this was evident in the percentage of both new and used cars being financed below R200 000, which has increased substantially to 51 percent in the first quarter from 37 percent in the fourth quarter. “This indicates a shifting emphasis on the value proposition that consumers place on their vehicles as they look for the maximum amount of value from a car.”
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De Vries added that South Africa’s low gross domestic product growth rate, increases in interest rates, higher inflation, a weakening rand, lower consumer confidence and looming possibility of further sovereign ratings downgrades had all played a role in the price increases and lower sales levels.
TransUnion’s financial registrations data indicated that new vehicle finance deals dropped by about 34 percent year on year in the first quarter of this year, while used vehicle finance deals declined by 16 percent in the same period.
The trend was confirmed earlier this month by Rudolf Mahoney, the head of brand and communications at WesBank, who revealed that new vehicle applications it had received last month dropped 20 percent year on year, while demand for used vehicle finance declined 3 percent.
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Mahoney said demand for used vehicles had outstripped new vehicles by 2.36 used vehicles for every new vehicle sold, a ratio last seen in December 2009.
Nicholas Nkosi, the head of Standard Bank Vehicle and Asset Finance Retail Banking, also confirmed a shift away from new to used vehicles.
Nkosi said their used vehicle finance transaction grew year on year by 16 percent in March, while new vehicle finance transactions declined by 17.2 percent in the same period.
De Vries said this week that if the trend continued, it would result in a market contraction for the third consecutive year.
TransUnion’s index is based on the value of vehicle financing agreements from a basket of passenger vehicles incorporating the 15 top volume manufacturers.
De Vries said the current economic constraints were affecting both the consumer and most vehicle-related sectors, including dealerships, finance houses and the insurance industry.
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