The rate of increase in new vehicle prices rose to 7% in the fourth quarter of 2022, from 2% in the corresponding quarter a year earlier.
TransUnion Africa Auto’s vice president of automotive information solutions, Kriben Reddy, said on Tuesday that new vehicle price increases are below the rate of inflation, but are expected to increase in the coming months .
TransUnion’s Vehicle Price Index (VPI) also revealed that the rate of increase in used vehicles increased to 9.1% from 7% in the same period.
Source: TransUnion
Reddy said all indicators suggest a difficult year for South Africa’s auto industry, despite the industry so far shrugging off vehicle price inflation, declining consumer credit health and the looming macroeconomic storm clouds to record an increase in vehicle sales in the fourth quarter of 2022.
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cheap rand
Econometrics chief economist Azar Jammine believes the depreciation of the rand has contributed greatly to the rise in new vehicle prices.
Jammine said the rand has fallen to its weakest level since April 2020 on a trade-weighted real basis and is now as cheap as it was at the time of the Covid-19 pandemic, and virtually as cheap as it was at the time of ‘Nenegate’ and the global financial crisis in 2008/09.
The reference to ‘Nenegate’ is on 9 December 2015, when former President Jacob Zuma sacked then Finance Minister Nhlanhla Nene, causing a collapse in the value of the rand.
“The rand in terms of purchasing power is currently as cheap as it has been on any of these occasions and so you have to pay more to import things than at any time in recent years,” Jammine said.
He noted that the rate of increase in new vehicle prices is still below the consumer price index (CPI) because motor manufacturers are still trying to suppress their increases, “but they cannot hold on indefinitely”.
Read: Toyota rejects suggestions of above-inflation price hikes [Oct 2022]
“Motor manufacturers did not raise the prices of new vehicles any more than they have because of the risk of the market collapsing.
“The market has been surprisingly strong, but I don’t expect it to last that long.”
Interest rate
Absa Vehicle & Asset Finance head of business strategy and analysis, Henry Botha, said that every time the interest rate rises, it becomes harder and harder for consumers to afford to buy a vehicle.
But Botha said the vehicle market is still resilient in terms of sales despite price increases caused by the rand/US dollar exchange rate and the price at which vehicles can be brought into the country.
He said it is possibly due to vehicles landing in the country after all the stock shortages and being distributed to dealers at the new price.
Improved stock levels of used vehicles
Botha expressed surprise that price increases for used vehicles are still below 10%, as the latest data released by Statistics SA revealed that used vehicle prices had increased by around 15 %.
He said used vehicle stock levels are improving and noted that the number of vehicles listed on cars.co.za will rise to almost 70,000 from a low of 60,000 in early 2022.
“That’s an indication to me of how many financeable used vehicles there are on the market,” he said.
Financing offers
TransUnion said the number of finance deals in the passenger vehicle market rose 1.5% year over year in the fourth quarter of 2022.
Reddy said new vehicle finance deals were up 13% while used vehicle deals were down 3.4% as the market continued to recalibrate following the effects of the Covid-19 pandemic. and global supply chain issues.
However, Reddy cautioned that negative GDP growth from the previous quarter and low consumer confidence suggest the industry could face a slowdown in demand as the year progresses.
“The first key indicator for the car market is consumer confidence. Deteriorating credit health is a leading indicator of a challenging business environment for retailers and lenders.”
He added that the TransUnion Consumer Poll showed that “45% of consumers expected to reduce their retail shopping activities in the next three months, 58% expected to reduce discretionary spending and 46% expected to kept on big purchases like appliances and cars.”
“The other key indicator is GDP growth. Historically, we’ve seen any growth rate below 1% as a likely indicator of a declining new vehicle market. A recent Bloomberg survey suggests that it’s little The economy is likely to grow by more than 0.3% quarterly through 2023, and economists predict GDP growth will slow to 1.2% this year from 2.3% in 2022.
“At this level, the industry is treading a fine line,” Reddy said.
Relationship between used and new
TransUnion said the ratio of used to new vehicles sold changed significantly in the last quarter, which it largely attributes to continued pressure on the supply of quality used vehicles.
Reddy said a year ago, 2.31 used vehicles were sold for every new vehicle, but that declined to 1.98 in the fourth quarter.
He said 20% of used cars sold were less than two years old, but this continues to decline.
“Financed demos made up 4% of used finance deals, indicating that consumers are opting for older vehicles where possible, while car prices and pressure on disposable income increase,” he said. .
Reddy added that rising car prices are reflected in average price points, with the percentage of new and used cars financed for less than Rs 200,000 falling to 20% in the fourth quarter of 2022 from 27% in corresponding quarter of 2021.
“The limited number of quality vehicles available under Rs 200,000 and rising prices also contributed to consumers migrating from the Rs 200,000-300,000 range to above Rs 300,000 as consumers continue to look for value in used vehicle market, with quality used vehicles increasingly difficult to obtain,” he said.
