The weakening rand, particularly in the latter half of 2013, contributed to new car inflation rising to 5.65% in the fourth quarter of 2013 – its highest level since March 2010, while the rate of used vehicle deflation continued to slow throughout the quarter, TransUnion reported in its latest Vehicle Pricing Index (VPI) on Thursday.

According to the credit information management firm, used vehicle inflation recovered slightly to -1.72%, compared with the -3.09% posted for the third quarter of 2013. 

“However, it still ended the year in negative territory, with prices 2.18% lower than they had been in the fourth quarter of 2012,” the company noted.

The VPI further showed that new car prices continued to trend upwards throughout the fourth quarter, with new car inflation increasing from 4.14% in the third quarter.

Vehicle risk intelligence company TransUnion Auto Information Solutions calculated the quarterly VPI from data it received on monthly sales returns from thousands of dealers throughout the country, as well as from vehicle financing registrations from all major banks and vehicle finance houses.

TransUnion Auto business development director Nick Tuttelberg said the latest VPI indicated that “the tide appeared to be turning” for the used car market, but said this did not mean that the used market was “out of the woods yet”.

“While there was some recovery for used vehicles towards the end of the quarter, this could be attributed to issues such as limited stock supply on certain models, as well as the widening inflation gap between new and used vehicles,” he said.

“Overall, the economy is still under pressure. The rand experienced one of its worst years against the dollar in 2013, seriously affecting the cost of imports, while gross domestic product expanded only by an annualised 0.7% in the third quarter. This was the lowest growth rate in the last four years, as the strikes in the automotive industry dragged down manufacturing,” he commented.

Tuttelberg further noted that there was still general credit demand in the market, with “many” vehicle finance houses experiencing similar levels of demand in November 2013 as that experienced in November 2012.

“We don’t expect credit demand to stay at those levels after January this year. These levels were largely owing to consumers remaining highly indebted, as well as ongoing inflationary pressure, credit amnesty concerns and extended finance periods on vehicles, which were effectively pushing out vehicle replacement cycles,” he held.
    
Despite the ongoing rise in new car inflation, the ratio of used to new vehicles sold continued to move in favour of new cars, from 1.66 and 1.7 in the third and second quarters respectively to 1.6 in the final quarter of the year.

“Given the increasing price of new cars, this trend is unlikely to continue for much longer. The new market is being supported by manufacturers’ incentives and trade-in assistance. The question remains how long manufacturers can continue this intervention in the face of ongoing pressure on the rand,” Tuttelberg concluded.