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Makers of new cars face uphill battle

Industry news

Johannesburg - Vehicle manufacturers will either have to slow down production or cut margins even further to create more demand in the new vehicle market, according to vehicle risk intelligence company TransUnion Auto Information Solutions.

Targeted marketing strategies and incentives would also have to be implemented by dealerships to match supply to demand, said Derick de Vries, the chief executive of TransUnion Auto Information Solutions.

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File picture: Thomas Peter

De Vries said the ongoing recession in the domestic new vehicle market, combined with an extremely difficult economic environment, pointed to an unfavourable short- to medium-term outlook.

Year to date there has been a 12.4 percent decline in new passenger vehicle sales, an 8.9 percent drop in light commercial vehicle sales and an overall reduction in new vehicle sales of 11.3 percent.

Projected growth

The National Association of Automobile Manufacturers of South Africa said in May that new vehicle industry production should continue to benefit from the 12 percent projected growth in export sales to 375 000 units from 333 802 last year.

However, vehicle exports increased by only 1.3 percent to 263 930 units in the first nine months of this year from the 260 569 units exported in the same period last year.

This is largely because of a 54 percent decline in vehicle exports into Africa because of the current poor economic environment on the continent.

TransUnion’s latest vehicle price index revealed that the rate of increase of both new and used vehicle prices accelerated further in the third quarter of this year.

New vehicle prices increased by 9.9 percent year on year in the third quarter from 8.4 percent in the second quarter.

Used vehicle prices rose by 2.8 percent from 2.7 percent in the same period.

The further increase in new vehicle prices was attributed by TransUnion to a delayed reaction to rand weakness and ongoing poor economic conditions.

TransUnion data also showed there had been significantly fewer deals financed in the third quarter of this year than in the corresponding quarter last year.

De Vries said TransUnion’s financial registrations data indicated a drop of about 48 percent in new vehicle finance deals and 12percent on used vehicle finance deals in the third quarter compared with the corresponding quarter last year.

He said the percentage of new and used vehicles financed below the average price of R200 000 had increased in the third quarter to 50 percent from 38 percent in the same quarter last year.

De Vries said luxury vehicles had been substituted for more affordable vehicles that still provided most of the accessories in top of the range vehicles.

He said household cash flow measures showed that household finances were the weakest they have been since 2010 and that consumers did not have any room to take on any additional debt.

“Low levels of both consumer and business confidence combined with new vehicle pricing remaining above the consumer price index will continue to add severe pressure to the new vehicle market.

“This has, however, seen the demand for used vehicles continue to increase considering the affordability challenges in the new vehicle market,” he said.

De Vries said consumers were tending to look for cheaper cars or hold on to their existing vehicles for longer than normal.

One new vehicle was financed in the third quarter for every 2.93 used vehicles financed compared with one new vehicle financed for every 1.71 used vehicles that were financed in the corresponding quarter last year.

De Vries said overall the current economic conditions had slightly improved the used car market, with year-to-date volumes increasing, but the new car market had suffered.

He predicted the market would show some signs of recovery within the next 12 to 18 months.

BUSINESS REPORT

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