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Financial|Power|Maintenance
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financial|power|maintenance

Affordability becoming an issue in the new-car market – WesBank

Image of WesBank marketing and communications head Lebo Gaoaketse

Lebo Gaoaketse

2nd August 2023

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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New-vehicle sales showed marginal growth in July, inching up by 1.3%, to 43 389 units, compared with the same month last year.

“It isn’t surprising that the market appeared more subdued during July than the 14% growth experienced during June,” says WesBank marketing and communications head Lebo Gaoaketse.

“First half [sales] targets and significant product activity and volume bolstered June sales. 

“However, a market of over 43 000 units remains strong in the context of the 2023 performance.”

The impact of interest rate and inflation news during July could provide impetus for good sales numbers in August and the remainder of the year, adds Gaoaketse.

Interest rates were put on hold for the first time since November 2021, and inflation fell within the target band, providing some relief for consumers. 

Despite household budgets buckling under inflation and the rising costs of debt, consumers appear to remain enchanted by the allure of a new car. 

Vehicle affordability is, however, increasingly becoming a concern, says Gaoaketse.

“Vehicle price inflation has a bigger impact on the purchase decision than the ultimate ability to repay the instalment linked to interest rates,” he explains.

The bad news is that vehicle price inflation is more than twice the consumer price inflation (CPI) in the context of the average value of debt financed by WesBank.

“There is only so much affordability consumers can find in the new-vehicle market by opting for lower-priced alternatives,” says Gaoaketse.

“The base cost of entry is now at a level that begins to make an impact on the type of customer the industry can attract.”

Recent research by Lightstone shows that there are significantly fewer consumers under the age of 35 purchasing new vehicles than ten years ago. 

“While this may be impacted by mobility lifestyle choices such as ride-hailing and sharing, rather than owning vehicles, the sheer affordability [of a new car] in the midst of rising household debt is limiting buying power in the market,” notes Gaoaketse.

The new passenger car market reported a decline of 9.7%, to 27 839 units in July – 1 956 units down on June sales. 

The segment has been a weak performer for most of the year.

In contrast, light commercial vehicle sales were up 32.6% in July, at 12 666 units. 

While lower in volume than passenger cars, the appeal of these vehicles – many of them locally manufactured – is obvious from the consistent growth seen throughout the year.

“With fuel price increases during August, the overall cost of mobility remains a key consideration for new-vehicle purchase decisions,” notes Gaoaketse. 

“Consumers should consider the entire cost of ownership when considering a new vehicle, not just the instalment. Insurance, fuel and maintenance all impact affordability.”

Recently appointed National Automobile Dealers Association (Nada) chairperson Brandon Cohen says Nada is also seeing a buying-down trend in the new-car market, with many consumers opting for smaller and less expensive models, “which are also less of a drain on the monthly household budget”. 

“What is concerning is that there is lots of activity on digital platforms and websites, but this is not translating into sales in the passenger space. This is likely due to the financial constraints consumers are facing.”

 

Edited by Creamer Media Reporter

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