Vehicle sales growing, but storm clouds loom, warns TransUnion

17th March 2023 By: Irma Venter - Creamer Media Senior Deputy Editor

South Africa’s automotive industry shrugged off ongoing vehicle price inflation, declining consumer credit health and looming macroeconomic storm clouds to record an increase in vehicle sales in the fourth quarter of last year, but all indicators suggest a tough year ahead, warns information and insights provider TransUnion.

TransUnion’s latest vehicle pricing index (VPI) shows a sharp year-on-year increase in both new- and used-vehicle pricing.

The new-vehicle index jumped from 2% in the fourth quarter of 2021, to 7% in the fourth quarter last year, with used vehicles moving from 7% to 9.1% over the same period.

The number of financial agreements in the passenger vehicle market in the fourth quarter increased by 1.5% year-on-year, with new- vehicle deals surging 13% and used-vehicle deals decreasing by 3.4%.

However, negative economic growth from the prior quarter and low consumer confidence suggest that the industry may face a slowdown in demand as the year wears on, says TransUnion South Africa auto information solutions VP Kriben Reddy.

“The first key indicator for the car market is consumer confidence. Deteriorating credit health is a leading indicator for a challenging trading environment for retailers and lenders.

“TransUnion’s Consumer Pulse Survey showed that 45% of consumers expect to decrease their retail shopping activities in the next three months, 58% expect to cut back on discretionary spending, and 46% expect to hold off on large purchases like appliances and cars,” notes Reddy.

“The other key indicator is gross domestic product (GDP) growth,” he adds.

“Historically, we’ve seen that any growth rate below 1% is a likely indicator of a declining new-vehicle market.

“A recent Bloomberg survey suggests the economy is unlikely to grow by more than 0.3% quarter-on-quarter through 2023, with economists predicting GDP growth slowing to 1.2% this year, from 2.3% in 2022. At this level, the industry is treading a fine line.”

The newest TransUnion VPI also shows that the ratio of used to new vehicles sold shifted significantly in the past quarter, owing largely to ongoing pressure on the supply of quality used vehicles.

A year ago, 2.31 used vehicles were sold for every new vehicle. In the fourth quarter of last year, this declined to 1.98.

In the used-vehicle market, 20% of cars sold were less than two years old.

Demo models financed made up 4% of used vehicle financed deals, which indicates that consumers are opting for older vehicles where possible, while car prices and pressure on disposable income increase.

Consumers between the ages of 26 and 40 bought nearly 46% of all vehicles financed, of which 73% were used.

Rising car prices are reflected in the average price points, with the percentage of cars (new and used) being financed under R200 000 dropping to 20% in the fourth quarter last year, down from 27% in the corresponding period in 2021.

The limited number of quality vehicles available under R200 000, as well as rising prices, is contributing to consumers migrating from the R200 000 to R300 000 band to over R300 000 as consumers continue to look for value in the used-vehicle market, with quality used vehicles increasingly difficult to source.

“There’s a trend of consumers purchasing used vehicles that are older than those they purchased previously,” says Reddy. “This will add to the average age of vehicles on the road and increase opportunities for servicing older vehicles.”