SA car prices: Consumers willing to spend – TransUnion
Johannesburg – “Increased consumer confidence and improving economic conditions as a result of the changing political landscape are likely to result in more motorists heading to dealerships this year and driving off in a new set of wheels,” reports TransUnion.
Kriben Reddy, Head of TransUnion Auto, says that increased confidence in the economy will give more impetus to a trend already seen in the latest TransUnion Vehicle Pricing Index (VPI), with the market shifting from used to new vehicles.
For the second consecutive quarter, new vehicle prices increased below inflation, and have dropped significantly from 9.4% in Q4 2016 to 2.4% in 2017. This was mostly due to a stronger rand in the second half of 2017, which allowed manufacturers to reduce new price increases.
Conversely, used-vehicle pricing does not look as good on paper and has experienced higher price increases than those of new cars. They’ve marginally risen from 3.3% in Q4 2016 to 3.5% in Q4 2017. This increase can be attributed to a higher demand for good quality, and relatively new (less than two years old) used vehicles, contrasted with a limited supply.
The VPI report, now in its 14th year, examines the link between the year-on-year increase in vehicle pricing for new and used vehicles, drawing data from a basket of passenger vehicles incorporated from the top 15 volume manufacturers. Data is collected from across the industry and used to create the VPI.
Reddy said: “The current market is experiencing the real effects of supply and demand With a weaker rand we saw higher than CPI price increases on new vehicles over a long period. This significantly widened the pricing gap between new and used vehicles and shifted consumer demand more in favour of used vehicles.
“The rise in demand, coupled with a limited and slowly diminishing supply of used vehicles is causing used vehicle pricing to rise. This is a natural cycle within the vehicle market and is probably one of the best times for a consumer considering a new vehicle to enter the market. As would be expected, this is also driving an increase in the average value of all vehicles being financed.
The accelerating shift from used to new vehicle purchases is evident in the financing statistics. In Q4 2016, banks financed 2.5 used vehicles for every new vehicle, compared with 2.22 in Q4 2017. This is a significant drop from even Q3 2017 when they financed 2.45 used vehicles for every new vehicle.
“We expect the VPI trend to continue into 2018, with modest increases in volume for new and used vehicles,” says Reddy. “Exciting new model introductions in 2018 will allow for new vehicle sales to grow, albeit at a modest rate of around 2%. Consumers will continue placing a large emphasis on value proposition when purchasing a new vehicle. Consequently, the less expensive passenger vehicles will continue to do well in the South African market.”
In Q4 2016, 50% of vehicles financed were valued under R200 000, in Q4 2017 this was just 41%.
Assuming we can avoid a Moody’s downgrade in the next few months, Reddy predicts we can expect continued rand strength and a possible cut in interest rates, both of which will provide more downward pressure on vehicle prices and increase consumers willingness to spend.