Swing back to new cars, but pre-owned market has its perks
INTERVIEW
With new car sales declining in recent years in SA, there has been a clear swing towards used cars and the value that they hold. Yet, according to Kriben Reddy, the boss of TransUnion’s automotive division, the pendulum is swinging back to new again.
Reddy says that extended periods of a weak rand drove consumers to the used market as prices of new cars continued to rise, but the strengthening of the rand in the past year has kept new car price increases at bay and he saySwing s that the “cycle’s turning now”.
As well as a slower rate of vehicle price increases, Reddy says that there have been a huge number of marketing incentives from both manufacturers and dealer groups. Sales showed improvements towards the end of 2017 in the dealer channel while finance deals were also up at the end of the year.
Pricing remains the biggest trend says Reddy, but there is definitely a more cautious approach when it comes to consumers’ buying decisions. He says consumers are either buying down or buying older. In the case of buying down, many are purchasing new in the rapidly expanding sub-R200,000 segment but there are also many new buyers in this part of the market too, where models such as the Renault Kwid and Datsun Go feature.
However, there are many buyers continuing to see value in buying pre-owned. Reddy says that 40% of used purchases are just one to two years old, with buyers wanting specification and affordability but not wanting to suffer the depreciation. These models also provide peace of mind with warranties and maintenance or service plans and he says that 7% of the models sold in this segment are demo vehicles.
There is a slight buoyancy to the market again and Reddy says now is the best time to trade in your old vehicle, particularly if, as he expects, there are no interest rate rise shocks.
“Probably the best time you can get into the market is now.”
However, there is one recent shock that is likely to hurt the market and that is the VAT increase. This will affect both new and used car sales and at the upper end of the market the additional ad valorem taxes on luxury models could have some impact although it will probably only be small.
There are also major changes happening in the credit market says Reddy. TransUnion is rolling out is new Credit Vision application to the banks at the moment which will enable credit scoring for the 11-million South Africans who traditionally could not be scored. The system monitors consumer spend as a way to predict credit worthiness, such as how often they purchase pre-paid cellphone top-ups. It will also be linked to a core insurance database to see what insurances people have and to ensure vehicles are properly covered to provide peace of mind to the credit lenders.
Debt however remains an issue and many banks are seeing continuously high levels of defaults and repossessions. Speaking at the SA Car of the Year function recently, CEO of Wesbank, Chris de Kock, advised that there is an increasing level of debt among higher earners leading in many cases to vehicle reposessions.
De Kock says many high earners are finding it harder to maintain their standard of living as the cost of living increases and to keep the appearance of success they are finding themselves in more debt.
Reddy says that there are new ways to predict what he calls “pre-delinquency” though. This includes proactive credit and debt management, predicting that a client will default before they do through monitoring of other accounts. Vehicle finance houses can see when a client starts to fall behind on store card payments for example and step in before the situation leads to issues with vehicle or insurance repayments. Preventing a repossession is far more beneficial says Reddy, something that the banks generally also agree with.
If you are in the market then TransUnion has also launched a new generation of its vehicle check and pricing application. The original app used to only look at a car’s value, but now consumers have access to far more information before they buy a vehicle.
The database is directly linked to the South African Police Service enabling consumers or dealers to know instantly whether a vehicle has been involved in an accident or is stolen. It is possible now to scan the vehicle licence or use the car’s vehicle identification number to get this information instantly, as well as values.
It marks a big change for the used car industry, putting power in the hands of the consumer to be able to get additional peace of mind whether buying from a classified ad or dealership.
2018 will be another year where the total cost of ownership of a vehicle should be the main thing for consumers to look at, says Reddy. In particular, he says that consumers should be aware of how the general economic climate might affect their budget.