Is it all doom and gloom in the local car market?
I can’t even recall how many times I hear someone comment on South Africa’s car market and just how expensive cars are these days. And while I cannot agree more (I would struggle to afford a car myself), the local car market has tried to do what it can to remain affordable.
New vehicle price increases have remained below inflation for more than two years now. Despite this, the number of new vehicles financed in Q4 of 2019 – a key indicator of sales – fell 1.6% compared to the same period a year ago, although the number of used vehicles financed showed a 1.4% increase.
According to the latest TransUnion SA Vehicle Pricing Index (VPI), the South African car market will remain depressed for the foreseeable future, despite the interest rate cuts and fuel decreases.
Kriben Reddy, head of Auto Information Solutions for TransUnion Africa, says, “The major issue facing the local automotive industry is the need for structural reform at a macro-economic level. We need to see sustained positive economic growth to get the new car market moving, and the challenge is that in 2019 we weren’t there. The problem is, it is unlikely that this situation will change in the short term, indicating that we may continue to battle for some years yet…”
IT’S NOT ALL BAD NEWS
Thankfully, it is not all doom and gloom. Export sales of South African built cars grew 17.7% in 2019 over the previous year, providing some measure of relief for local manufacturers. “Exports provide a bright spot by retaining jobs and keeping production lines going, but they are still a relatively small part of greater sales,” says Reddy.
The report also shows that the used-to-new vehicle ratio has increased from 2.03 in Q4 2018 to 2.09 in Q4 2019, which means that for every new vehicle financed, 2.09 used vehicles are financed. In the used vehicle market, more than 36% of used vehicles are under two years old, with 6% of those being ex-demo models. This indicates that consumers are opting for older vehicles as pressure on disposable income increases, said Reddy.
For the past seven quarters, the percentage of cars (new and used) being financed below R200 000, R200 000 – R300 000 and over R300 000, remains the pretty consistent. This proves that people are spending less on cars and opting for less expensive cars.
NOW FOR THE GOOD NEWS
Reddy says the good news for consumers entering the buying market is low price increases, low inflation rates predicted for 2020 and a range of marketing incentives from dealers, which include trade assistance to vehicle discounts.
“The challenge is that to get a customer into a new vehicle, you have to get him out of the old vehicle first. And in many cases, the very deal structures that are meant to stimulate the market – like offering terms of to 84 months on car finance – are having the opposite effect by taking customers out of the market for longer. If you take a deal over 54 months, conventional wisdom is that you’re going to be back in the market after 36 months. Over 84 months, you’re taking that customer out of the market for another 1-2 years,” said Reddy.