File picture: Paulo Whitaker / Reuters.
File picture: Paulo Whitaker / Reuters.

Car inflation slowing, but buyers still going for cheaper cars

By Motoring Staff Time of article published Jul 30, 2019

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Johannesburg - New vehicle prices are rising slower than general inflation, but consumers are still spending less money on cars, and they’re buying older second hand models.

These are just some of the insights revealed by TransUnion’s  Vehicle Pricing Index for the second quarter of 2019.

According to the report, the Vehicle Pricing Index (VPI) for new vehicles increased from 2.6 percent in the first quarter of the year to 3.1 percent in Q2, while the VPI for used vehicles fell from 2.5 percent to one percent. Of course, this doesn’t mean that vehicle prices are coming down, just that the increases are taking place at a slower rate versus other consumer items.

The report also points out that the bulk of buying activity currently happens in the used market, with the used-to-new vehicle ratio (as measured by finance applications) increasing to 2.16 in Q2 2019 from 2.05 during the same period last year.

It’s interesting to note that only six percent of used vehicles that were financed were nearly-new demo models, while only 34 percent were less than two years old - a sure indication that consumers are increasingly opting for older vehicles.

Buyers are also spending less on cars, with the percentage of cars finance below R200 000 dipping back to the same level seen six years ago, meaning that purchasing power in real terms has actually decreased significantly.

Things are unlikely to get better in the short term, although those that are parting with their hard-earned money can probably look forward to getting a better deal, says TransUnion’s head of Auto Kriben Reddy:

“The signs for new vehicle sales are looking stagnant going into the second half of the year as dealers push sales through guaranteed buy-back options and marketing initiatives to suit the consumers’ pocket.”

“What this means is that consumers are in a position of power when purchasing new or used vehicles, with price increases well below inflation for the past two years as manufacturers try to stimulate the market through bargains and discounts,” Reddy concluded.

Reddy says that the market could see a rebound from next year, all going well:

“While we anticipate car sales will remain under pressure for the rest of the year, we’re cautiously optimistic about 2020.”

“Although the Q1 2019 GDP fell sharply, our expectations are that we will see a slight improvement in Q2 and Q3, which should positively impact the car market,” Reddy concluded.

IOL Motoring

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