Used car deflation ends as rand slide lifts new car inflationComment on this story
The steep depreciation in the value of the rand is starting to filter through to new vehicle prices, resulting in a turnaround in used car cost trends.
New car inflation continued its upward trajectory to reach 6.58 percent year on year in the first quarter, its highest level in four years, according to the latest Trans-Union vehicle pricing index, released yesterday.
At 6.58 percent, vehicle inflation in the first quarter was almost 1 percentage point higher than the 5.6 percent recorded in the fourth quarter of last year and more than 4 percentage points higher than the 2.4 percent in the first quarter of last year.
This is also the first time since the fallout from the global financial crisis in 2008/2009 that new car inflation has outpaced the annual increase in the consumer price index (CPI).
Keith Dye, the chief executive of TransUnion Auto Information Solutions, said the vehicle risk intelligence company expected new vehicle prices would continue to increase for the foreseeable future because of the continued volatility and inherent weakness of the rand.
TransUnion also reported that after 14 consecutive months of deflation, used car prices edged into positive territory in January this year and maintained this upward momentum throughout the first quarter.
The company said used car inflation ended the quarter at 0.83 percent compared with deflation of minus 1.72 percent in the previous quarter.
Dye said used car prices were expected to continue trending upwards because prices tended to lag new car prices by a few months and new car inflation had been rising steadily for several months.
He said the price recovery on used vehicles sold in the first quarter would have been even better had it not been for the annual impact of used vehicles theoretically becoming one year older and, therefore, having a lower value, on January 1.
“The increased used prices will give dealers a modicum of relief. However, it would be premature to talk about a recovery in the used market just yet. We will be monitoring the situation closely to see whether the improvement is sustained,” he said.
TransUnion calculates the quarterly vehicle price index from data it receives on monthly sales returns from thousands of dealers throughout the country along with vehicle financing registrations from all of the major banks and vehicle finance houses.
Despite the ongoing increase in new car inflation, the ratio of used to new vehicles sold continued to move in favour of new cars during the first quarter.
After plummeting to 1.25 used cars to every new car financed at the start of the quarter, possibly because consumers had been holding off on purchasing new vehicles to register them this year, the trend reversed and the quarter ended with 1.53 used cars financed for every new car.
Dye said that while used car prices were starting to increase, they were doing so at a considerably slower pace than those of new cars.
“This could see the swing back to used cars accelerate in the coming months. This trend is likely to be supported by the fact that consumers could find it increasingly more expensive to purchase vehicles because of the recent 0.5 percentage point increase in interest rates.”
He said it was still unclear what role the credit amnesty would have on vehicle sales.
“It may enable some consumers to obtain vehicle financing they might previously not have qualified for but rising vehicle prices and nervousness in general around credit may dampen market prospects. Only time will tell.”