Johannesburg - The rate of increase in new vehicle prices has been softening despite the recent sharp depreciation in the value of the rand.
The latest TransUnion vehicle pricing index released yesterday showed that the rate of increase in new car prices declined to 6.18 percent in the fourth quarter from 6.58 percent in the previous quarter and 7.18 percent in the fourth quarter of 2014.
Read: Rough road ahead for new vehicle sales
Used car price inflation increased marginally to 1.47 percent in the fourth quarter of last year from 1.44 percent in the third quarter.
TransUnion’s index is based on the value of vehicle financing agreements.
Slowdown
Derick de Vries, the chief executive of Auto Information Solutions at TransUnion, said macroeconomic factors contributed to the 4.1 percent decline in domestic vehicle sales last year and new vehicles showed a further slowdown in price increases in the fourth quarter of last year.
De Vries said the slowdown was a direct result of struggling sales volumes of new vehicles and a stressed economy as economic pressure weighed heavily on the pockets of both consumers and businesses.
But he said manufacturers would be under more pressure to pass on price increases to consumers this year because of the weakness in the rand.
“The slowing down of marketing incentives from manufacturers in 2016 combined with a weakening rand will continue to strain sales volumes and lead to difficulty in the market,” he said.
He added that new vehicle sales could fall by up to 8 percent this year because of the weak rand and lower consumer confidence.
“Manufacturers will be faced with depressed sales volumes together with further currency weaknesses, which will result in increased prices into 2016.”
Johannes Jordaan, a consultant to Econometrix, said the group’s vehicle price index last year increased by 5.48 percent year on year, based on the list price of new cars.
Jordaan said the relatively low increase was partly due to base effects, while the “pass through” of the exchange rate depreciation was suppressed because a larger percentage of the top-selling vehicles were manufactured locally.
Much lower international commodity prices also had assisted in keeping prices down, he said, noting that steel prices in US dollar terms, for example, decreased last year by about 18 percent and aluminium by 11 percent.
However, he said Econometrix saw price pressure building up, especially for some imported vehicles, where inflation was already reaching double digits, and vehicle prices were expected to rise well above the rate of increases for last year.
Affordability
De Vries said affordability was playing a bigger role in buying decisions and consumers were settling for a used vehicle, which offered the same luxury as a new vehicle.
The vehicle financial registration data analysed by TransUnion shows the ratio of new to used vehicles financed has marginally reduced year on year from one new vehicle for every 1.76 used vehicles financed to one new vehicle for every 1.74 used vehicles financed.
Rudolf Mahoney, the head of brand and communications at WesBank, said manufacturers were in a precarious position because new vehicle prices needed to be adjusted for the depreciation of the rand, but marketing incentives were required to maintain sales levels and manufacturers could not price themselves out of the market.
Mahoney said if manufacturers cut back on marketing programmes, many consumers would have to hold onto their vehicles, which would keep them out of the market for longer.
BUSINESS REPORT