While the latest indicators for the second quarter (Q2) of the year suggest an uptick in the local car market, the combined effects of the lockdown measures prompted by the third wave of the Covid-19 pandemic and the civil unrest witnessed in Gauteng and KwaZulu-Natal in July could take a heavy toll on the South African automotive industry in the coming months, with potential knock-on effects on the broader economy, warns credit monitoring company TransUnion.
“Where 2020’s Level 5 lockdown created a demand issue in the market, the combination of the 2021 Level 4 lockdown and civil unrest have created both demand and supply issues, with motor manufacturers suspending operations and supply chains coming to a halt,” says TransUnion Africa auto information solutions VP Kriben Reddy.
“The knock-on effects could be significant. If manufacturers aren’t building, selling and exporting cars, they need fewer people, which leads to greater unemployment and a major setback for an industry which contributes 6.7% to gross domestic product.”
According to the latest TransUnion South Africa Vehicle Pricing Index (VPI), the Q2 VPI showed a dramatic rise in used-car prices as demand for quality used stock surged.
While new-vehicle finance deals in Q2 increased by 52% year-on-year, the number of deals for used vehicles increased by 70%.
Accordingly, the VPI for new vehicles eased to 6.1% in Q2 2021, from 6.5% in Q2 2020, while the used-vehicle VPI rose sharply to 4.9%, from 1.6% a year ago, and is expected to surpass the new-vehicle VPI this year.
The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles from the 15 top volume manufacturers.
The index is created using vehicle sales data from across the industry.
The used-to-new-vehicle ratio continued to climb in Q2, reaching 2.67 used vehicles financed for every new vehicle financed.
In all, 35% of used vehicles were under two years old, with the number of demo models financed dropping from 6% in Q1 2021, to 4% in Q2, which indicates consumers are opting for older vehicles as pressure on disposable income increases, notes the TransUnion VPI report.
The percentage of cars (both new and used) being financed below R200 000, R200 000 to R300 000, and over R300 000, saw lower volumes in the lowest bracket, with more activity in the over R300 000 bracket.
This is due to ongoing price increases, which have pushed many new vehicles over the R300 000 price point.
There is also a growing trend of consumers downgrading from a two-car household and opting for one slightly more expensive vehicle, for example, trading two sedans for one sports-utility vehicle, states the TransUnion VPI report.
This is expected to continue in the coming months as vehicle prices increase in real terms.
“While the macroeconomic outlook had been improving at the time we compiled the report, consumer confidence remains low,” says Reddy.
“We know from our wider Consumer Pulse studies that household finances remain under pressure, which is impacting consumers’ disposable income.
We’re seeing the impact of this clearly reflected in the car market, as consumers look for more affordable options.
“Overall, the market has shown signs of recovery from last year, but new obstacles await,” he adds.
“The next six months will be interesting for the automotive sector as the effects of consumer uncertainty and disrupted supply chains will inevitably delay purchases, which will cause dealers to rethink their approach and seek alternative streams of income.”