The South African car market showed signs of resilience in the third quarter of the year as it bounced back from an all-time-low second quarter to record month-on-month increases in the number of new and used cars financed in August and September, according to the latest TransUnion South African Vehicle Pricing Index (VPI).
While total financial agreement volumes in the passenger market showed an expected 21% year-on-year decline on the third quarter of last year, the market overcame rising vehicle prices, difficult trading conditions and uncertainty to record month-on-month increases of 35% and 45% in August and September respectively, albeit off a low base.
This suggests that, while challenging times still lie ahead, the industry could be on the road to recovery from the total shutdown induced by the Covid-19 pandemic, says TransUnion Africa auto information solutions VP Kriben Reddy.
“Overall, the global automotive industry has had another challenging quarter. In South Africa, it has been a quarter of gradual recovery in terms of business and consumer confidence, new-vehicle sales, finance applications and overall demand.
“While the automotive industry is not yet out of the woods, the small gains made towards the end of the quarter off the back of record lows in the second quarter are a real positive for the industry.”
Some bad news for consumers is that vehicle prices continue to rise, with the VPI showing that new-vehicle pricing rose above inflation for a second successive quarter.
The VPI for new vehicles moved to 7.6% in the third quarter of this year, from 3.3% in the same period last year, with the used-vehicle VPI rising to 2.3% from 1.1% in the third quarter of last year.
This follows ten quarters of vehicle price increases remaining below inflation, and could herald a cycle of further increases, notes Reddy.
The VPI measures the relationship between increases in vehicle pricing for new and used vehicles from a basket of passenger vehicles that incorporates 15 top volume manufacturers. The index is created using vehicle sales data from across the industry.
“In South Africa, new-vehicle pricing is not driven by demand. As around 70% of our vehicles are imported, factors like exchange rates and tax duties play a big part in the price hikes. The used-car market, on the other hand, is entirely-demand driven, so the fact that we’re seeing a rise in the prices of used cars shows a clear increase in demand for second-hand vehicles,” says Reddy.
The used-to-new ratio increased marginally from 2.31 in the third quarter of 2019, to 2.35 in the third quarter of this year.
This means that for every new vehicle financed, 2.35 used vehicles are financed.
The make-up of used-vehicle sales shows that 36% of vehicles financed are under two years old, with demo models making up 6% of used-car finance deals.
This indicates 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 over R300 000 has seen a movement back towards vehicles over R300 000 in the third quarter of this year – the highest since TransUnion started tracking these categories in 2011.
While this could be seen as a positive sign, it is also indicative of segment movements through higher-vehicle pricing, premium brand used vehicles and a shift towards consumers purchasing bakkies.
Reddy says the fact that interest rates have dropped to an all-time low could assist some consumers from an affordability point of view, although lenders facing high delinquency rates would need to manage key metrics to minimise their risk by amending thresholds of loan-to-value ratios, loan terms and balloon payments.
“Consumers and dealers need to be cognisant of the vehicles they purchase or stock due to defleeting and possible vehicle repossessions as a result of defaults on repayment agreements in the upcoming months.”