Photo by: Duane Daws
The latest Vehicle Pricing Index (VPI) released by vehicle risk intelligence company TransUnion reveals that new-vehicle price inflation in South Africa continued to slow in the third quarter of 2015, despite significant rand depreciation and rising living costs.
While the consumer price index (inflation) increased from 4.1% to 4.3% in the third quarter of this year, new-car inflation softened from 6.91% in the second quarter to 6.58% in the third quarter.
Used car price inflation was also down, from 1.53% to 1.44%.
The VPI shows that the ratio of new-to-used vehicles financed has widened from 1.81 – that is one new vehicle to every 1.81 used vehicles financed – to 1.83 on a year-on-year basis.
The impact of several macroeconomic factors is evident in vehicle sales, with both new and used vehicles showing a slight slowing down in price increases compared with the second quarter – a direct result of declining new-vehicle sales and a struggling economy, says TransUnion Auto Information Solutions CEO Derick de Vries.
He says new-car dealers received no help from the continued weakening of the rand in the third quarter, which forced manufacturers to effect price increases that are well above the inflation rate.
However, in order to stimulate sales, incentives are offered to consumers to mitigate the increase in pricing, notes De Vries.
“If there are a lot of vehicles in the system as a result of depressed sales, price inflation will continue to decrease.”
De Vries believes stockholding will become problematic for dealers if the sales decline continues and manufacturers increase stockholding days.
“The new-vehicle market is highly competitive and consumers are spoiled for choice, which is challenging dealers to still hold reasonable margins.
“The question remains; for how long can manufacturers provide sales assistance on new vehicles and what will the impact be if they take this away? The reality is that consumers will continue to seek more affordable vehicles, of which there is an abundance in the used market.”
De Vries says consumers are still seeing better value for money in the used-car market.
“With household debt rising, consumers still aspire to drive a new vehicle, but simply cannot afford it. Many are prepared to settle for a used vehicle that is cheaper with higher mileage, or with more extras.”
Data from vehicle finance group WesBank corroborates this trend.
“We measure demand through the number of finance applications received,” says WesBank brand and communications head Rudolf Mahoney.
“More and more consumers are applying for finance on used cars than there are people applying for new-car finance.
“Those applying are also structuring their contracts to make repayments more affordable. Contract periods are being maxed out, with the average at 69 months, and we are seeing more demand for balloon payments too.”