New car price inflation is slowing, but used car prices are surging, VPI index shows

By Staff Reporter Time of article published Nov 9, 2021

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Johannesburg - New vehicle price inflation slowed significantly in the third quarter of 2021, according to the SA Vehicle Pricing Index (VPI) that’s released by TransUnion.

The index showed that new vehicle inflation effectively halved from the same period in 2020, from 7.6% to 3.8%. However it was a completely different picture on the pre-owned front, with the used vehicle index more than doubling, from 2.3% to 5.9%, in the face of changing consumer demand and supply issues.

Buying patterns are also changing, TransUnion said. Its VPI Index showed that more than 70% of total new and used financed vehicles in the third quarter were hatchbacks and SUVs, with new SUVs making up 32% of all new vehicles financed – which is indicative of consumers looking for practicality. Interestingly, nearly half of the vehicles financed are being bought by consumers between the ages of 26 and 40.

The Q3 report also showed that the percentage of new and used cars being financed below R200 000, R200 000-R300 000 and over R300 000 saw lower volumes in the lowest bracket, and more activity in the over R300 000 bracket. This is due to ongoing price increases which have pushed many new vehicles over the R300K price point.

According to TransUnion, there is also a growing trend of consumers downgrading from a two-car household and opting for one slightly more expensive vehicle, for example, trading two sedans for one SUV. This is expected to continue in the upcoming months as vehicle prices increase in real terms.

The VPI was designed to measure the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles that incorporates 15 top volume manufacturers. The index is created using vehicle sales data sourced from across the motor industry.

TransUnion’s vice president of auto information solutions, Kriben Reddy, said the slowing new vehicle inflation is good news for embattled consumers.

New vehicles are not only relatively more affordable, but consumers will also benefit from a range of incentives currently being offered by manufacturers to try and stimulate the market, TransUnion said. Those looking to trade in their old vehicles will find dealers willing to pay top dollar for quality cars, with a growing shortage of used vehicle stock in the country.

“There’s no doubt that the real story for the quarter is the huge shift in pricing patterns in the past year, which is being driven by a combination of changing consumer demand and supply issues in the new car market, where the global computer chip shortage continues to affect motor manufacturers,” Reddy said. “As a country, we import around 70% of our cars, so we’re definitely feeling the effects of the shortage – and there’s no clear end in sight,” Reddy added.

Used-to-new ratio increasing

The Q3 report also showed that the used-to-new ratio increased year-on-year from 2.35 in 2020 to 2.4 in 2021 – in other words, 2.4 used vehicles are sold for every new vehicle. In the used vehicle market, 35% of vehicles are less than two years old, and this continues to decrease as the supply of quality used vehicles remains under strain. Demo models financed made up 6% in of used financed deals in the quarter, which indicates consumers are opting for older vehicles as quality supply diminishes and pressure on disposable income increases.

“We’re in an interesting and rapidly changing market, where new and quality used vehicles are in short supply at a time when consumers are looking for the best value for money,” Reddy added. “The pressure on the quality used car market will continue until prices become too expensive in relation to new vehicles, and the industry will continue to operate in a challenging environment for the foreseeable future.”

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