New cars were back in vogue during the first quarter of the year as competitive prices driven by rand strength and lower interest rates and inflation boosted new car demand by consumers on the hunt for enhanced value, credit union TransUnion said on Wednesday.
The TransUnion South African Vehicle Pricing Index (VPI) for new and used vehicle pricing dropped to 2.3% and 2.9% in the first quarter of this year, from 8.8% and 3.7% in the first quarter of 2017, respectively.
A lower VPI indicates slower pricing increases and, therefore, greater relative affordability for the consumer, it explained.
While an extended period of rand weakness a year ago drove consumers to the pre-owned market, TransUnion Auto head Kriben Reddy said the new data shows that the pendulum is swinging back to the new-vehicle market.
Notably, he highlighted that the used-to-new ratio created from the data, which is based on finance deals registered in the past quarter, indicates that finance houses are financing 2.09 used vehicles for every one new-vehicle as compared to 2.49:1 in the first quarter of 2017.
Some buyers had opted to buy new vehicles ahead of increases in value-added tax (VAT) and the fuel levy in April, contributing to a slight lift in demand; however, Reddy said the positive impact of a reduction in interest rates, lower inflation rates, strengthening of the rand and slow price increases from manufacturers all played an important role.
“While demand was driven, in part, by the pending tax increases, the interest rate cut announcement in March also helped push vehicle sales higher,” said Reddy.
Other positive factors, he added, included an improved political climate since the end of 2017 and a slight lift in consumer and business confidence.
“This move was, therefore, more than just trying to beat the VAT increase and it is very significant that new pricing is now below consumer price inflation.”
Reddy added that many dealers have chosen to absorb the VAT increases rather than passing them on through higher prices.
“The industry has been building up towards the higher tax rate for a while and so it did not come as a total surprise. However, what would sway the market more is that about 80% of vehicles are imported and this meant the currency had a direct impact on prices because when the rand is in a good position, manufacturers can bring pricing down,” Reddy explained.
The underlying impetus of the recent trends is essentially the value proposition of new vehicles versus used vehicles, he added, noting that there is now a better climate for new cars, including the benefits of innovative financing structures like leasing and maintenance plans.
According to the data, the used passenger vehicle pricing index had been consistent in 2017, ranging between 3.5% and 3.7%. However, TransUnion observed a drop to 2.9% in the first quarter of this year.
Notwithstanding these economic and market developments, TransUnion cautioned consumers to be very careful when making major purchase decisions like buying a second-hand car or upgrading to a new car.
“Consumers must still ensure that, from a credit perspective, they closely watch affordability and manage their credit health; they must make sure the total cost of ownership is worked out and calculated carefully,” Reddy warned.