South African consumers are voting with their wallets, buying fewer new vehicles and moving to used cars.

Johannesburg - South African consumers are notorious for voting with their wallets; if you price yourself out of the market, they don’t complain, they just quietly melt away, and the first you hear of it is when sales of your products start falling.

And that’s what has been happening in the South African new-vehicle business; according to the TransUnion Vehicle Price Index for the fourth quarter of 2016, the average price of new vehicles has gone up by 9.4 percent, compared to the last quarter of 2015 - that’s more than double the average price increase between the fourth quarter of 2014 and the same period in 2015.

The price rise has been, on average, more than three percent higher than the general rate of inflation for the past three quarters, which has pushed many South Africans, their household budgets already stretched to the limit, away from new cars and into the used-car market.

Sales figures released by the National Association of Automobile Manufacturers of South Africa bear that out, with a 12 percent drop in the sales of new cars and a 9.4 percent fall in new light commercial sales, between the fourth quarter of 2015 and the same period last year.

Supply and demand

But here’s the thing: The number of finance deals for new vehicles in the last three months of 2016 dropped by 25 percent compared to the year before, while the number of loans for used cars went up eight percent - South African lenders are now financing two and a half times as many used cars as new ones.

But, if you take the figures across both new and used vehicles, the number of finance deals around the R200 000 level has stayed constant, while the number of of loans closer to R190 000 has actually gone up slowly but steadily, pushing the average monthly repayment up from R4656 to R4910. That’s an increase of just more than one percent, considerably below the rate of inflation, as South African motorists vote with their wallets, buying smaller new cars or moving to the used-car sector.

Nevertheless, says TransUnion Auto Solutions boss Derick de Vries, there are only so many decent used cars out there and, as the supply diminishes, demand for new vehicles should recover. He sees the new-car market stabilising in 2017 - although manufacturers and distributors will have to sharpen their pencils to remain competitive; the VPI report indicates that their customers are not going to spend more on a car, they’re going to buy down instead.

IOL Motoring

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