The price of used vehicles continued to surge in the third quarter of the year, recording its fourteenth successive quarter of growth, says TransUnion in its latest Vehicle Pricing Index (VPI).

However, the information company adds that the new-car market is showing signs of normalising as supply levels stabilise, which could influence used-car demand.

“But, this may not be enough to ward off a possible slowdown in car sales as consumers look to cut discretionary spending in the face of inflationary pressures and rising interest rates.”

TransUnion’s latest VPI shows that the vehicle price inflation of new vehicles rose sharply year-on-year, moving from 3.8% in the third quarter of 2021, to 6.8% in the third quarter of 2022.

The used-vehicle index increased from 5.9% to 9% over the same period. 

In contrast, South Africa’s overall inflation rate eased to 7.6% in August after hitting a 13-year high of 7.8% in July. 

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.

“Overall, the number of financial agreements in the passenger vehicle market continued their long climb back towards pre-pandemic levels, increasing by 8% year-on-year,” says TransUnion.

“New-vehicle volumes soared by 21% in this period, compared with a 3% rise in used-vehicle volumes.”

TransUnion Africa auto information solutions VP Kriben Reddy says this is partly owing to consumers re-entering the market as new vehicles became more readily available following numerous supply-chain issues.

“[However], now that dealers have largely solved supply issues, there is going to be an increasing demand problem as the effects of inflation and interest rates start to bite into consumer wallets. 

“A moderation in transport inflation, thanks to fuel price decreases in August and September, may offset a build-up in food and clothing price pressures, but we expect price inflation to remain sticky at elevated levels.”

According to TransUnion’s latest Consumer Pulse study, more than half of South African consumers have cut back on their spending, and expect to cut discretionary spend even further in the coming months. 

One consequence of this is that consumers will hold onto their cars for longer, and the automotive industry will have to be creative to lure them back into the market, notes Reddy.

The Stats
The ratio of used to new vehicles sold shifted significantly in the third quarter. A year ago, 2.41 used vehicles were sold for every new vehicle. In the third quarter of 2022 this declined to 2.1. 

In the used-vehicle market, 25% of cars sold were less than two years old, and this continues to decrease as the supply of quality used vehicles remains under pressure. 

Consumer buying patterns showed that more than one in three (34%) of new and used financed vehicles are hatchbacks, while more than one in five (21%) were sports-utility vehicles. 

Consumers between the ages of 26 and 40 bought nearly half of all vehicles financed, of which most were used vehicles. 

The price points of cars (new and used) being financed saw upward movement year-on-year, with a clear move from under R200 000 into the over-R300 000 bracket. 

This is partly because there are a limited number of quality vehicles available under R200 000, given the high demand in the market and limited supply, explains TransUnion.

This lack of supply also contributed to a migration from the R200 000 to R300 000-band, to more than R300 000 as consumers continue to look for value in the used-vehicle market, with quality used vehicles increasingly difficult to source.

While fuel prices remain volatile, Reddy says all indications suggest that transport inflation should continue to moderate towards the end of the year. 

According to the South African Reserve Bank’s latest Monetary Policy Review , elevated costs across the board mean that price inflation will remain high over the coming months, with the headline rate only expected to dip below the upper-end of the target range of 3% to 6% in the second quarter of 2023. 

Overall, inflation is expected to average 6.5% in 2023, compared with 4.5% in 2021. 

“What’s becoming clear is that the South African automotive industry cannot rely on traditional vehicle ownership to drive itself forward,” says Reddy.

“While the market is still dominated by a vehicle ownership based model, the real opportunity going forward lies in enabling alternative mobility models, such as subscription services, which open up entirely new audiences and segments to the industry, creating opportunities for broader mobility inclusion.”