South Africa’s new vehicle market is experiencing a “notable shift” as customers gravitate towards more affordable ownership options.
Commenting on TransUnion’s Vehicle Pricing Index (VPI) for the third quarter of 2023, CEO Lee Naik said dealers were offering bigger discounts and incentive packages, while banks were offering longer loan terms than ever.
“We are seeing that financially distressed consumers are gravitating towards more affordable mobility options, including older, lower-cost used vehicles,” Naik said.
“Alternative financing solutions are coming into play, and dealerships are offering trade support in the form of discounts and incentives on new vehicles on a scale that we have never seen before, in some cases also extending the finance period up to 84 months.”
Commenting on the report, the SA National Dealership Association (NADA) said these 84 month finance contracts were being offered with no balloon payment option at the end.
While this is a positive development that could prevent any nasty surprises at the end of the loan period, it’s important for consumers to pay close attention to their financial situation before committing to longer finance periods.
For instance, in the first few years a car will usually depreciate faster than the monthly payments can eat into the loan amount, and this could be exacerbated in a longer-term loan, which would presumably come with lower instalments.
However, inflation and economic constraints are making it impossible for many South Africans to afford a vehicle at all. According to TransUnion, lower-income consumers now make up a smaller portion of vehicles that are financed.
The organisation also noted an 8.4% decrease in the number of vehicles financed between Q3 2022 and the same period this year, while “loan delinquency” rates have increased too.
Interestingly over the same period, the average loan value increased from R317,000 to R359,000, which is largely a combination of rising vehicle prices and a move to more premium vehicle segments among those that can actually afford to buy a car.
The market has also shifted in favour of new cars, according to the TransUnion Q3 report.
Between Q3 2022 and Q3 2023 the used-to-new ratio decreased from 2.05 to 1.41.
This is partially due to an increase in used vehicle prices as stocks come under pressure. TransUnion’s VPI index put used car inflation at 8.0% in Q3 2023, versus 6.5% for new cars.
In fact some segments of the used car market are showing dramatic increases, TransUnion said, with midsize SUV prices rising by 19.4% in just three years.
However, NADA also attributes the shift to attractive new car deals as well as the introduction of new entry-level models from established OEMs as well as Chinese brands.
TransUnion said the largest discount cited in Q3 2023 for an entry level vehicle was 12.69%, meaning the after-discount price was actually lower than the listed price during the same period in 2022.
NADA added that dealers were adopting pragmatic strategies, responding to market forces that dictate the final sale price, often significantly divergent from the list price.
“This underscores the depth of the pricing strategies adopted by dealers and their OEM’s to stimulate new vehicle sales. The market is evolving, and consumers are benefiting from these unprecedented opportunities,” said NADA Chairperson Brandon Cohen.
Bottom line: if you’re a consumer, it pays to shop around.