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SA’s Car Market’s Changing Dynamics Highlighted By Latest Vehicle Price Index Data

Kriben Reddy, head of TransUnion Auto

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%* compared to the same period a year ago, with the total number of vehicles financed - including used vehicles - down 8% for the first three months of the year, according to the TransUnion VPI report. This decline has broader ramifications for the entire economy, as the automotive industry contributes an estimated 7.7% to South Africa's annual GDP.

The reduction in sales was in spite of the VPI for new and used vehicle pricing falling to 2.3% and 1.8% in Q1 2019 respectively, from 2.3% and 3% 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%**.

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% year-on-year in January, 22.5% in February, and 23.7% in March. Still, it might not be enough for the industry to reverse its decline by the end of the year, says Kriben Reddy, head of TransUnion Auto.

“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,” said Reddy.

“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,” he said.

The effects of prolonged pressure on consumers can be seen through the fact that more consumers are buying used vehicles than new vehicles. The 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%, which is consistent across the last three quarters.

In all, 35% of used vehicles sold were under two years old, with 10% 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,” said Reddy. “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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