New vehicle prices continued to climb above the inflation rate in the fourth quarter of last year, adding to what will be a challenging 2021 for the automotive industry. Picture Henk Kruger/Cape Argus
New vehicle prices continued to climb above the inflation rate in the fourth quarter of last year, adding to what will be a challenging 2021 for the automotive industry. Picture Henk Kruger/Cape Argus

New car sales rise above inflation in the fourth quarter

By Edward West Time of article published Feb 12, 2021

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CAPE TOWN - NEW VEHICLE prices continued to climb above the inflation rate in the fourth quarter of last year, adding to what will be a challenging 2021 for the automotive industry.

In a market constrained by the financial effects of the Covid-19 pandemic and many motor dealers struggling to remain in business, the latest TransUnion SA Vehicle Pricing Index (VPI) showed vehicle prices rose above the inflation rate for the third successive quarter in the past three months of 2020.

TransUnion Africa auto information solutions vice-president Kriben Reddy said yesterday that this trend could indicate further car price increases in 2021.

He said lower petrol prices, low interest rates and low inflation were not enough to move consumers to buy new cars at this stage. Consumer confidence was low due to the pandemic and ongoing unemployment rate concerns, negative economic growth and pressure on disposable income.

Total financial agreement volumes in the passenger vehicle market fell 9 percent in the fourth quarter over the same period in 2019, with new vehicle finance deals down 14.8 percent and used vehicles down 6.2 percent.

At the same time, the VPI for new vehicles rose sharply to 9.6 percent in the fourth quarter, from 2.9 percent in the fourth quarter of 2019, with the used vehicle VPI rising to 2.9 percent from 1.2 percent over the same period.

The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of cars that incorporates 15 top volume manufacturers.

The used-to-new vehicle ratio in the fourth quarter was static at 2.31 - for every new vehicle financed, 2.31 used vehicles were financed.

The make-up of used vehicle sales showed that 35 percent of vehicles financed were under two years old, with demo models making up 6 percent of used financed deals. This indicated a preference for older vehicles and pressure on disposable income, said Reddy.

The vehicle export market was forecast to recover in line with the global economy - exports fell 30 percent from 2019 to 2020. Covid-19 waves was the biggest underlying factor impacting demand right now, said Reddy.

Where 2020 was a time of “keeping the lights on” for many dealers and industry players, Reddy believed the theme for 2021 would shift to refocusing and recovery as the industry looked to adapt to new buying patterns and customer behaviours.

This included repurposing local manufacturing plants to meet the growing demand for electric vehicles, and dealers looking to digital tools to transform the buy and sell experience for consumers.

“We are confident that we will see an increase in vehicle sales over 2020, but the real reference will be how quickly we can recover to 2019 levels,” said Reddy.

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