Fuel hikes bite but car prices are more stable
New vehicle prices have risen by an average 2.6% and used-vehicle prices by 2.5% in the second quarter of 2018, according to the TransUnion SA Vehicle Pricing Index (VPI). This is significantly less than the 5.4% increase (new vehicles) and 3.6% rise (used vehicles) recorded in the same period last year, and the VPI for new passenger vehicles has dipped below inflation for the fourth consecutive quarter.
Despite this positive news, TransUnion cautions that the industry is at a sensitive point in the cycle, with a weak rand, potentially higher interest rates and global trade wars likely to weigh on imported component costs being pushed on to consumers in the months ahead.
Head of TransUnion Auto in South Africa, Kriben Reddy, said the current pricing trends are nevertheless “very good news” for consumers as some car brands have managed to reduce their prices over the past 12 months.
“For instance, the new Polo Vivo 1.4 Trendline is 3.6% less expensive than a year ago and the cost of a Hyundai Grand i10 Fluid 1.2 is down 2.9%,” said Reddy.
TransUnion research shows that even certain luxury brands have reined in price increases. For instance, the Mercedes E-Class has lifted only 0.9%.
“At a time when consumers are feeling the pinch from price increases in areas, like fuel, as the economy struggles to gain ground, these lower prices provide significant relief.”
Lower input costs, CPI inflation, reduced interest rates and competitive financing structures, together with the streamlining of some product lines, are among the reasons underpinning the current pricing trends.
TransUnion data show that total financial agreement volumes in the passenger market have increased from the second quarter of 2017 to the second quarter of 2018 by 7%. New passenger finance deals increased by 18% and used increased by 2%.
“These factors have offset the negative impact of fuel and VAT increases which make it ideal for consumers to enter the new-vehicle market,” said Reddy. The used-to-new ratio, meanwhile, decreased from 2.41 in Q2 2017 to 2.05 in Q2 2018.
Jeff Osborne, head of Gumtree Automotive, said: “It’s clear that we are in a cyclical turn towards new vehicles which I suspect will continue as long as the dealers keep the current lid on price increases”.
In the used vehicle market, the make-up of used vehicle sales has shown that 43% are under two years old and 9% were demo models, which indicates consumers are opting for under two-year-old vehicles, continued Reddy.
While the current risks to the export and component import market are high due to global trade wars, Reddy does not expect to see a major impact in the next few months. However, he cautioned that there is likely to be a lagged effect as tariff changes in certain geographies take effect over the longer term.
“The US has kicked off the process of imposing a tariff on imports and in the short term, we will see an appreciation of the rand. This will directly affect SA’s GDP growth rate,” he said.