Johannesburg - The South African car market came under renewed pressure in the first quarter of 2019, with the latest TransUnion SA Vehicle Pricing Index (VPI) falling for the seventh consecutive quarter as the effects of fuel hikes, challenging economic conditions and electricity outages caused by load-shedding took their toll.
New vehicle sales fell nearly 10 percent compared to the same period a year ago, with the total number of vehicles financed - including used vehicles - down 8 percent for the first three months of the year, according to the TransUnion VPI report.
We caught up with TransUnion’s head of automotive operations, Kriben Reddy, to unpack this decline, which has broad ramifications for the entire economy, as the automotive industry contributes an estimated 7.7 percent to South Africa’s annual GDP.
Sales down
Reddy notes that the reduction in sales was in spite of the VPI for new and used vehicle pricing falling to 2.3 percent and 1.8 percent in Q1 2019 respectively, from 2.3 percent and 3 percent in Q1 2018.
The Index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles, and the lower score effectively means that car prices are increasing more slowly than inflation, which currently stands at 4.1 percent.
But it’s not all bad news for the South African automotive industry. “While domestic sales are progressively dropping, exports are on the rise: showing strong growth of 29.5 percent year-on-year in January, 22.5 percent in February, and 23.7 percent in March. Still, it might not be enough for the industry to reverse its decline by the end of the year,” Reddy expounds.
Kriben Reddy, TransUnion head of automotive operations.
“The car industry in general is still in decline, and is taking strain from several quarters right now: an ongoing subdued macro-economic environment, the lag effect of the 2018 interest hike, weaker exchange rates, lower business confidence in the run-up to the elections and constrained household disposable income have all had an effect on vehicle sales.”
“Load-shedding has also played a role, with the number of valuations being done and the volume of footfall through dealerships being clearly affected by power outages. There’s broad consensus that we’ll see a minor recovery in the auto market second half of the year, but the fear is that it won’t be enough to compensate for the first half decline,” Reddy adds.
Used cars gain traction
The effects of prolonged pressure on consumers can be seen through the fact that more people are buying used vehicles than new vehicles. The latest TransUnion VPI report shows the used-to-new vehicle ratio declined to 2.13 from 2.09 in the previous quarter, which means that 2.13 used vehicles were financed for every new vehicle financed.
People are also spending less on cars, with the percentage of cars (both new and used) being financed below R200 000 staying steady at 37 percent, which is consistent across the last three quarters.
In all, 35 percent of used vehicles sold were under two years old, with 10 percent of those being demo models.
In the South African market, there is a significant price differential between new and used vehicles, so demo models and used vehicles less than two years old offer attractive alternatives to purchasing a new vehicle, with the baseline price of new vehicles now firmly in the R200 000 to R300 000 band.
“We anticipate domestic car sales will probably end the year between 3% down on 2018,” Reddy says. “The indicators suggest a better 2020, with the latest GDP figures showing early signs of a turnaround, which should translate into improved consumer confidence and trading conditions.”
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