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Johannesburg - The sharp depreciation of the rand is driving new car prices higher.
This is likely to prompt a shift from new to used cars.
Vehicle risk intelligence company TransUnion Auto Information Solutions said last week that the depreciation of the rand, particularly in the second half of last year, contributed to new car price inflation rising to 5.65 percent in the fourth quarter, its highest level since March 2010.
Year-on-year new car price inflation increased to 3.8 percent last year from 2.2 percent in 2012.
TransUnion calculates the quarterly index from data it receives on monthly sales returns from thousands of dealers throughout the country and vehicle financing registrations from all the major banks and vehicle finance houses.
Johannes Jordaan, an associate at Econometrix, said its vehicle price index for light vehicles, which comprise cars and light commercial vehicles, rose 4.4 percent year on year in the third quarter last year and was forecast to rise 7.4 percent in the fourth quarter.
Jordaan said vehicle prices had to start increasing because of the depreciation of the rand, despite pricing competition among manufacturers in the past four to five years resulting in vehicle price inflation being below the country’s overall consumer inflation rate.
He believed the bulk of new vehicle price increases caused by the depreciation of the rand would come through during the first quarter of this year.
However, Jordaan said every company had its own strategy and local manufacturers, unlike vehicle importers, had the ability to offset some of the increased costs.
This would result in different brands increasing their prices at different times and by different percentages, with some also possibly giving up some of their profit margin to remain competitive.
Nick Tuttelberg, the director of business development at TransUnion, said his company’s latest vehicle price index indicated that the tide appeared to be turning for the used car market.
“While there was some recovery for used vehicles towards the end of the quarter, this could be attributed to issues like limited stock supply on certain models as well as the widening inflation gap between new and used vehicles,” Tuttelberg said.
TransUnion’s index revealed that used vehicle inflation recovered slightly to minus 1.72 percent in the fourth quarter from minus 3.09 percent in the previous quarter, with used car prices on average dropping by 2.18 percent last year.
Tuttelberg said that overall, the economy was still under pressure, with the rand last year experiencing one of its worst years against the dollar, which seriously affected the cost of imports.
The value of the rand against the dollar dipped to a four-year low in May last year when it broke through the R10 a dollar mark and fluctuated between R9.50 and R10.50 in the second half of the year.
Tuttelberg said this trend had continued into this year, with the rand nearing R11 to the dollar last week. It was bid at R10.8535 at 5pm on Friday.
Despite the increase in new car inflation, the ratio of used to new vehicles sold continued to move in favour of new cars, to 1.60 used cars sold to every new car sold in the fourth quarter from 1.66 in the third and 1.70 in the second quarter.
But Tuttelberg said this trend was unlikely to continue for much longer given the increasing price of new cars.
“The new market is being supported by manufacturers’ incentives and trade-in assistance. The question remains how long manufacturers can continue this intervention in the face of ongoing pressure on the rand,” he said.