Car inflation slowest in five years

By Roy Cokayne Time of article published Oct 11, 2011

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New car prices rose just 1.8 percent year on year in the third quarter, the lowest increase for five years, according to the latest TransUnion Auto Information Solutions vehicle pricing index.

However, it appears that the vehicle price inflation honeymoon will soon be a thing of the past because of the recent weakness of the rand.

Mike von Höne, the chief executive of TransUnion Auto, warned that should recent rand weakness persist, the declining trend in new car price inflation could reverse in the fourth quarter of this year or early next year.

“This could put further pressure on new passenger vehicle sales that have been slowing this year. Current industry expectations are that the increase in the number of new passenger vehicles sold is unlikely to top 10 percent for the remainder of 2011 - down from highs of over 25 percent earlier this year,” he said.

Tony Twine, a motor industry analyst and director of Econometrix, agreed, stating that at current exchange rate levels, vehicle prices were likely to start rising from the first quarter of next year.

TransUnion Auto's latest vehicle pricing index revealed that car price inflation in the third quarter levelled off from 4 percent in the previous quarter and 3.8 percent in the first quarter. The vehicle pricing index is published quarterly and measures the year-on-year price inflation of a market-weighted basket of new and used vehicles.

Econometrix also compiles a vehicle price index but it is based on new vehicle list prices rather than transaction prices, which could include discounts.

Twine said its index showed that the year-on-year quarterly rate of change of the price of cars was 3.67 percent and light commercial vehicles 6.8 percent in the third quarter.

Twine attributed the low rate of increase in the third quarter to the strength of the rand up until last month.

He said the strengthening exchange rate from mid-2009 through to July this year had created a buffer or cushion that still existed today. This was the reason that vehicle prices had not yet moved upwards to any noticeable extent.

Twine believed manufacturers would not increase vehicle prices before the end of the year, subject to the rand remaining at current levels.

Econometrix is forecasting a 7 percent year-on-year increase in new light vehicle prices for next year.

Von Höne said the challenges in the used car market continued in the third quarter, fuelled by the continued pressure on new car prices, coupled with significant new vehicle discounts and favourable financing schemes. The index registered used car inflation at 3.8 percent for the third quarter, its highest level this year but still lower than last year's annual figure of 4.4 percent. -Business Report

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