The Covid-19 pandemic has dealt its own share of harm to the automotive industry, with the consequences still being felt today. Factory shutdowns, suspended manufacturing and semiconductor chip shortages have hampered regular production. If that wasn’t enough, the conflict in Ukraine has served up a host of unforeseen impacts, not only for the automotive sector but for world economies too.
With the lifting of the national state of disaster after 750 days of various levels of Covid-19 induced lockdowns, the country is slowly returning to some sort of normalcy. This includes many businesses and organisations encouraging their employees to return to the workplace.
However, while fuel prices continue to hit record levels due to, among other things, the ongoing unrest in Ukraine, fluctuations in the currency and a recent interest rate hike – the first of at least three for this year, economists have predicted – it is the consumer who has to face the brunt of continued rising prices. The past two years have seen many of us work from home, thus saving on motor vehicle costs such as fuel and maintenance with reduced usage. However, getting back on the road and having to manage the actual costs of vehicle ownership now also need to be factored into what is for many an already constrained budget.
“It is important to understand the total monthly costs of vehicle ownership, whether the car is being driven more frequently or not. Fuel consumption might vary accordingly, but fixed monthly payments, such as the vehicle finance repayment terms and insurance costs, remain a constant and need to be included in the monthly household budget,” says Lebogang Gaoaketse, WesBank Motor Head of Marketing and Communication.
This has led to South African motorists seeking affordability as a key consideration in the vehicle purchase decision. “This has seen the emergence of new brands focused on more affordable models, together with the introduction of many new entry-level options from established brands,” Gaoaketse continues. “These offerings also enable customers to tackle affordability at a lower price point, thereby lowering their monthly expenses, without sacrificing the benefits of new vehicle ownership.”
This can be better illustrated by analysing the total cost of ownership figures for the five years from 2017 – 2021 (see table below). The figures indicate that a vehicle owner in 2021 was paying on average R1,000 more per month than in 2017 to own and maintain a car.
For the purpose of this exercise, we have taken an average entry-level vehicle (approx. R250,000) that travels approximately 2,500 kilometres per month. The monthly cost of the vehicle ownership basket, comprising instalments, fuel, insurance and maintenance costs, has increased to R7,715.94 in 2021 from R7,583.76 in 2020 as a result of increases in interest rates and fuel costs. While this reflects a percentage increase of 1.74% year on year, the 2021 average figure is 14.97% higher than five years ago, when the monthly cost averaged R6,711.24 in 2017.
In 2021, vehicle instalments and fuel spend remained the largest portions of the basket, accounting for 79% of the monthly spend. Fuel spend accounted for 34% of the total, with the vehicle instalment amount sitting at 45%. The figures for 2021 show monthly fuel spend averaged R2,646, with the instalment rate significantly higher at R3,438. The monthly insurance cost was R1,274 or 16% of the cost, with running costs per month accounting for 5% at R358.
This is comparable with the mobility basket in 2017, where fuel spend accounted for 33% of the total at R2,210 and the vehicle instalment for 47% at R3,150. There has been a similar pattern since. However, 2022 might see fuel spend and vehicle instalment costs having an equivalent weighting with each accounting for 40% of the total.
The projected figure for 2022 is further evidence of the wide-reaching impact of both global and local influences on the total cost of vehicle ownership. The monthly cost is predicted to be R9,356.80, which reflects a 21.27% annual increase and is a staggering 39.41% higher than in 2017.
These costs are reflected in the WesBank Mobility Calculator, a tool that tracks and calculates motoring expenses. The total basket of costs comprises all the fees associated with vehicle ownership: the monthly instalment, comprehensive insurance premium, fuel and maintenance fees. These expenses are updated regularly to reflect current inflation and interest rates, and other fluctuating costs.
“It is important to remember that this monthly vehicle ownership basket figure is based on data that constantly shifts in relation to market activity and is thus intended as a guideline only. The economic impact of Covid-19 over the past two years will have created an anomaly in relation to the 2019 data, so this should also be taken into consideration when looking at the total figure for 2021.
“As a result of vehicle price inflation over the past year, consumers have spent more on average for new and used vehicles in 2021, and this trend is likely to continue into 2022. In March this year, the average value of a new vehicle financed through WesBank was R368,615 compared to March 2020 when the figure stood at R356,343. This reflects a 3.44% year on year average price increase for new vehicles,” says Gaoaketse.
With vehicles being driven less during the lockdown period since March 2020, the average fuel spend is down 3.14% in 2021 from R2,732 in 2019. However, this does not mean the overall cost of motoring is lower.