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africa|financial|power|solutions

New-vehicle pricing increasing sharply, shows TransUnion index

31st July 2020

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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The South African car market experienced record lows in the second quarter of the year, as the combination of minimal trading owing to the Covid-19 lockdown and the depressed economy saw a 71% decline in the number of new and used cars financed over the same period in 2019.

This is according to the latest TransUnion South Africa Vehicle Pricing Index (VPI).

The South African motor industry did not operate during April, was at minimal capacity in May and only resumed full operation in June. 

The ongoing impact of the pandemic did not allow the industry to recoup sales lost in April, and as vehicle prices continue to increase while consumers come under increased financial strain, local car dealers are set for a challenging second half of the year, says TransUnion Auto Information Solutions head Kriben Reddy.

“The focus for the industry now needs to shift to resilience, recovery, and creating a strategy to deal with new consumer behaviour. 

“By using learnings from the previous global recession in 2007 to 2009, when it took 24 months for the car market to recover, the industry can create robustness and understanding of the ‘new’ market more quickly, accelerating its recovery.”

The TransUnion VPI shows that new-vehicle pricing rose above inflation for the first time since the second quarter of 2017. 

The VPI for new vehicles rose sharply to 6.5% in the second quarter of 2020, from 3.1% in the second quarter of 2019, and to 3.1% from 1% for used vehicles. 

The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles, which incorporates 15 top volume manufacturers. 

The index is created using vehicle sales data from across the industry.

The financial impact of the Covid-19 pandemic, which has seen the unemployment rate rising above 30% in South Africa, has consumers either foregoing vehicle purchases or looking to buy down from new to used vehicles. 

The VPI report shows the used-to-new vehicle ratio has been trending upwards post-lockdown, from an average of 2.16 in 2019 to 2.31 in the second quarter of 2020. 

This means that for every new vehicle financed, 2.31 used vehicles are financed.

The make-up of used-vehicle sales shows that 33% of vehicles financed are under two years old, with demo models making up 6% of used financed deals. 

This indicates that consumers are opting for older vehicles as pressure on disposable income increases.

The percentage of cars (new and used) being financed below R200 000, R200 000 to R300 000 and more than R300 000 has seen a clear movement towards vehicles under R200 000 in the second quarter, says TransUnion. 

Any sign of consumers’ purchasing power growing marginally throughout 2019 has been pushed back post-lockdown, and TransUnion expects this trend to continue through 2020 as sentiment around the market continues to deteriorate.

“What is critical is how long it will take consumers to recover from the economic effects of the lockdown,” says Reddy.

“The longer the constraints of Covid-19 continue, the greater the impact on the industry and the broader economy. 

“TransUnion’s ongoing financial hardship research shows that consumers expect to be just over R7 000 short on their budgets every month, on average. 

“That’s more than the cost of ownership of an entry level car. This might keep a lot of people out of the market for even longer.”

The macro-economic outlook also remains challenging. According to the latest figures from the International Monetary Fund, the pandemic has caused global negative yearly growth in real gross domestic product of –3% for April. 

South Africa, the US and the UK have all declined further at ­–5.8%, –5.9% and –6.5% respectively. 

 

Edited by Creamer Media Reporter

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