The South African automotive industry faces a challenging 2021, with new-vehicle prices continuing to climb well above the inflation rate in a market already severely constrained by the financial effects of the Covid-19 pandemic.

This is according to the latest TransUnion South Africa Vehicle Pricing Index (VPI), which shows that vehicle prices rose above the inflation rate for the third successive quarter in the fourth quarter (Q4) of last year, at a time when consumers were financially constrained and many car dealers were battling to stay in business.

TransUnion Africa auto information solutions VP Kriben Reddy says this trend could herald further car price increases this year.

“The positive indicators of lower petrol prices, interest rates and inflation are not enough to move consumers into new- vehicle purchases at this stage, with consumer confidence low, as a result of the Covid-19 pandemic and ongoing unemployment rate concerns, negative economic growth rates and pressure on disposable income all having an impact.”

As expected, total financial agreement volumes in the passenger-vehicle market decreased by 9% in Q4, 2020, compared with the same period in 2019, with new-vehicle finance deals down 14.8% and used vehicles down 6.2%.

At the same time, the VPI for new vehicles rose sharply to 9.6% in Q4, 2020, from 2.9% in Q4, 2019, with the used-vehicle VPI rising to 2.9%, from 1.2%, over the same period.

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

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

The used-to-new-vehicle ratio in Q4, 2020, remained largely consistent, at 2.31, states the TransUnion VPI.

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

The make-up of used-vehicle sales shows that 35% of vehicles financed are under two years old, with demo models making up 6% of used financed deals, which indicates an ongoing preference for older vehicles, as pressure on disposable income persists.

The percentage of cars (new and used) being financed below R200 000, R200 000 to R300 000, and over R300 000, saw a clear movement out of the below R200 000 bracket towards vehicles in the R200 000 to R300 000 bracket.

This reflects the fact that, as inflation drives new-car prices up, there is a greater demand for used vehicles, which, in turn, drives used-vehicle prices up as well.

Where 2020 was a time of keeping the lights on for many dealers and industry players, Reddy believes the theme for 2021 will shift more to refocusing and recovery as the industry looks to adapt to new buying patterns and customer behaviours.

This includes repurposing local manufacturing plants to meet the growing demand for electric vehicles, and dealers looking to digital tools to transform the buying and selling experience for consumers.

“This is a tough time for dealers, and 2021 will still be a challenging year. We are confident that we will see an increase in vehicle sales over 2020, but the real reference will be how quickly we can recover to 2019 levels,” notes Reddy.