The car market showed signs of resilience in the third quarter, with the number of new and used cars financed in August and September. AP
The car market showed signs of resilience in the third quarter, with the number of new and used cars financed in August and September. AP

Automotive market resilient in third quarter

By Edward West Time of article published Oct 22, 2020

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CAPE TOWN - The car market showed signs of resilience in the third quarter, with the number of new and used cars financed in August and September rising from record lows in the second three months of this year.

The latest TransUnion SA Vehicle Pricing Index (VPI) released yesterday showed that total financial agreement volumes in the passenger market fell 21percent year-on-year from the third quarter of last year.

However, the market overcame rising vehicle prices, difficult trading conditions and economic uncertainty to record 35 and 45percent month-on-month increases in August and September, respectively, albeit off a low base.

Yesterday’s data was in line with recent figures released by the National Association of Automobile Manufacturers of South Africa, which showed that new vehicle sales last month, including trucks and exports, improved 23.9percent to 37403 units month-on-month, but reflected a decline of 11737 units, or 23.9 percent, compared with vehicles sold in September last year.

Kriben Reddy, TransUnion Africa’s vice-president of auto information solution, said: “This suggests that, while challenging times still lie ahead, the industry could be on the road to recovery from the total shutdown caused by the Covid-19 pandemic.

“Overall, the global automotive industry has had another challenging quarter. In South Africa, it has been a quarter of gradual recovery in terms of business and consumer confidence, new vehicle sales, finance applications and overall demand.”

The small gain made towards the end of the quarter was a real positive for the industry, said Reddy.

New vehicle prices rose above inflation for a second successive quarter, with the VPI for new vehicles moving to 7.6percent in the third quarter from 3.3percent in the same period last year, while the used vehicle VPI increased to 2.3percent from 1.1percent. This followed 10 quarters of vehicle price increases remaining below inflation, and this could herald a cycle of further increases, said Reddy.

The VPI is created using vehicle sales data from across the industry.

In South Africa, new vehicle pricing was not driven by demand, as about 70percent of the vehicles were imported, and factors such exchange rates and tax duties play a big part in the price hikes.

The used car market, however, was demand-driven, so the rise in the prices showed a clear increase in demand for second-hand vehicles, said Reddy.

The used-to-new ratio increased marginally from 2.31 in the third quarter of last year to 2.35 in the third quarter of this year. Thirty-six percent of vehicles financed were under two years old, with demo models making up 6percent of used financed deals. This indicated consumers were opting for older vehicles, as the pressure on disposable income increased.

The percentage of cars (new and used) being financed below R200000, R200000 to R300000 and more than R300000 had moved back towards vehicles more than R300000 in the third quarter - the highest since TransUnion started tracking vehicle sales in 2011.

Although this could be seen as a positive sign, it was also indicative of segment movements through higher vehicle pricing, premium-brand used vehicles financed and a shift in consumers purchasing bakkies.

Reddy said the low interest rates could assist some consumers from an affordability point of view, although lenders facing high delinquency rates would need to manage key metrics to minimise their risk by amending thresholds of loan to value ratios, loan terms and balloon payments.

“Consumers and dealers need to be cognisant of the vehicles they purchase or stock, due to de-fleeting and possible vehicle repossessions as a result of defaults on repayment agreements in the upcoming months,” he said.

BUSINESS REPORT

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