SA’s new and used car market in a Covid-19 world: Experts weigh in
Johannesburg - 'Buying used', as you might have already learned 'the hard way', comes with its challenges, such as assurance of ownership history and on-time maintenance.
Just a few weeks ago, we reported on a used vehicle that was shoddily repaired after being involved in an accident, only to be sold on to an unsuspecting customer who is now suffering huge economic loss as a consequence.
The thing is, there are plenty trustworthy used car dealers out there, and there are good used cars to be had for good prices. We always advise readers to deal with reputable dealerships to ensure they don't buy a lemon so to speak.
With so many South Africans feeling the pinch of a suppressed economy, I thought it might be a good idea to catch up with a few industry insiders to see what they have to say about the car market, demand for pre-owned vehicles in particular, and the benefits and challenges alluded to earlier as we march into the second half of the year.
There's tremendous value in the used car market
I went into the interview with Audi South Africa's head of Sales, Asif Hoosen, with some key questions around survival in a time where people just don't have the money to buy premium vehicles. He swiftly retorted, saying that while consumers are under pressure financially, they don't have to buy a brand new premium car, they can buy a pre-owned one and have the peace of mind that they would get if they bought a new car.
"On the Audi Pre-Owned side, we thoroughly assess each and every vehicle that enters the lot for sale. If a vehicle, whether it's an Audi or not, does not meet our stringent criteria, it does not appear on our approved pre-owned stand.
"This means if you see an approved pre-owned vehicle in one of our dealerships, there's a guarantee of its service history and quality. Usually, particularly the Audi models, still offer a portion of the standard Freeway Plan maintenance contract, which can be extended further up to 10 years in some instances from date of first registration," he explained.
Audi SA head of Sales Asif Hoosen.
I poked around a local Audi dealership in Sandton and found nothing but high quality used cars on the floor. Mostly Audis were on display, however, there were one or two other brands, and even those vehicles gleamed with pristine exteriors and interiors and full service histories.
I felt reassured that these vehicles were thoroughly assessed and a very helpful salesman was there to answer most of the questions I had. There was a particularly nice Audi A6 TDI on the floor that had less than 100 000km going for around R280 000, which is "Polo" money to be blunt. Sure it was almost five years old, but it looked and felt new and considering that a new A6 costs three times that amount, it seemed like a no-brainer purchase if I were in the market for a large family vehicle that was light on fuel and had some maintenance plan left.
Hoosen said whether people are looking for their dream car, or even if they are looking to "buy down" into something more affordable right now, there's extreme value in the used premium car market: "We have to remember that new car prices will go up soon and with a raft of new models coming from our side, we will do our best to keep increases to a minimum, but even I have to say that the pre-owned market offers tremendous opportunity to drive a good, premium and reliable vehicle without having to over commit to monthly premiums.
"We're offering really good deals on new cars right now with reduced interest rates and deferred payments, but I will agree that pre-owned offers the best bang for the buck in terms of what you're going to get for the price compared to a new car, just make sure you deal with approved used car dealers with a good reputation for customer service and satisfaction."
What about other premium brands?
After chatting to Hoosen from Audi SA, I got on the blower with Greg Maruszewski, managing director of Volvo Car South Africa, to see how the brand was doing during the Covid-19 lockdown in South Africa.
He said that since the start of the nationwide lockdown in March 2020 they have received increased interest in the R300 000 to R400 000 range; people particularly looking for pre-owned Volvo V40s and Volvo XC60s.
Beyond this demand, however, he said: "I think there will be a number of aspects affecting the used car market in the coming months. In some segments where for example the rental car companies are de-fleeting, there might be temporary pressure on prices for those cars due to oversupply. However, I think this will be limited. There may well be a higher demand for used cars as new car prices inevitably increase due to currency weakness, and this may well support the used car prices. Between these two forces, I expect the used car market to be stronger in the short term than the new car market when comparing to for example the same period last year."
File picture: Volvo Cars SA.
I probed him on a challenge that a number of readers had contacted us about since the start of the lockdown; some people had purchased a vehicle recently, only to find they are now unable to afford this vehicle's repayments, but they still owe the bank more than what a dealer is offering as a settlement value. I asked if there was a way for a consumer to ensure they are getting a fair price for their vehicle from a dealer when trading in or buying down.
Maruszewski said: "I know that used car dealers have a negative reputation, but I would still say that unless you can sell it privately to someone you know (eliminating the payment related risks), a reputable franchised dealer is the best bet.
"Private sales will sometimes get you more money (as the margin a dealer makes is effectively split between buyer and seller) but there are risks in that transaction for the buyer and seller. See a few dealers to obtain a fair price and compare their offers. While a dealer has to make a profit, they also have much bigger exposure for their cars and quite often an existing customer base so the seller might be surprised with the offer received. Lastly, there are a number of sources, like TransUnion, that can provide an indicative value for the vehicle, bearing in mind that condition of the car, as well as mileage, do have an impact on the value."
The Volvo MD added that it will take quite a while for sentiment to shift and for car-buying confidence, in general, to return amongst local consumers.
"Not this year for sure. Having said that, we will probably see some customers delaying their vehicle replacement decisions. As for buying the 'need' rather than 'want', in the premium segment, I think we will more likely see a down buying within the premium segment, rather than moving from premium to mass brands.
"I would not be surprised to see some customers replacing their XC90 with an XC60 if the circumstances dictate that but less likely moving to a mass brand. They would then probably just delay the purchase. However, with the current low-interest rates from the banks, the offers we have available, and the full exchange rate impact not priced in yet, this could be seen as an opportunity to replace older cars," he concluded.
People want even cheaper (premium) cars
After speaking to the two premium car associates, I decided to give TransUnion Africa a shout to see what they say about buying used right now. The company's head of Auto Solutions, Kriben Reddy said that there's a definite buy-down trend and that in most instances, people really want cheap cars.
"There seems to be consensus across all brands and across all price points that consumers are buying down. Motor vehicles up to R250 000 attract the most interest currently than more expensive vehicles. Naturally, this is due to more affordable monthly instalments and also not forgetting most likely a lower insurance premium.
"The top 3 financed vehicles in both new and used market have been VW, Hyundai and Toyota, which made up more than 70% and 50% of new and used financed deals respectively. This is indicative that consumers are looking at 'entry-level' type vehicles. The percentage of used vehicles financed under three years old has not moved drastically as it remains between 40% to 45%," he explained.
Reddy added that it is extremely challenging for motor dealers currently and there will be shrinkage in the dealer networks: "For the foreseeable future, I think dealerships that are in close proximity to each other might find it difficult and face competition, Dealerships within the same brand may merge in order to save costs, however, most dealerships are not just sustained by vehicle sales they are also sustained by workshops, parts sales, accessory fitments etc, so this will hopefully support dealerships for some time."
He also highlighted a key fact: "Some consumers are not affected and continue to be resilient. If you just take look at new vehicle sales for May 2020, Porsche reported 118 new vehicles, Lamborghini reported 4 vehicles and Bentley 5 to NAAMSA. Similar numbers were reported during certain months of last year. For most consumers, though, I would think it would take at least another 12 to 18 months to gain confidence again before they start to spend a little more to get that special car that they really want instead of settling for something that's more affordable."
With Naamsa expected to release sales figures for June in the coming weeks, we wait with eager anticipation to see what's going on in SA's vapid automotive landscape.