New car price rises are below inflation
NEW CAR SALES declined by 11.6 percent year-on-year last month as overall sales of new vehicles started the year weakly.
Figures released yesterday revealed that car sales slumped by 4 266 units last month to 32 642 units from the 36 908 cars sold in January last year.
Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), said the car rental industry had continued to make a major contribution and accounted for about 23.1 percent of new car sales last month, which meant more than one in every five new cars sold during the month represented a car rental sale.
Overall sales of new vehicles last month dropped by 8.9 percent to 45 888 units from the 50 386 units sold in January last year. Sales of new light commercial vehicles, bakkies and mini buses declined last month by 2.1 percent year-on-year to 11 689 units and medium commercial vehicles by 6.1 percent to 443 units, while heavy truck and bus sales increased by 4.5 percent to 1 114 units.
Export sales of new vehicles improved last month by 22 percent to 14 212 units from the 11 651 vehicles exported in January last year. Azar Jammine, the chief economist at Econometrix, said new vehicles sales last month were much weaker than expected, but attributed this weakness to the extremely strong growth in sales in November.
“The rand bombed out in November and I think that encouraged a lot of preemptive buying ahead of any price increases and left little for spending later on,” he said.
Jammine added that if the value of the rand stayed where it currently was, it would result in lower rates of increase in car prices, which would boost sales.
Kamilla Kaplan, an economist at Investec, said Naamsa anticipated a further modest improvement in domestic new vehicle sales to 2.6 percent yearon-year this year from 1.8 percent last year.
Kaplan said the expected new vehicle sales performance would be consistent with the projected lift in GDP growth this year to above 1 percent on the anticipated strengthening in business and consumer confidence post the December ANC elective conference.
‘The rand bombed out in November and… that encouraged a lot of pre-emprive buying.
She added that in addition to this confidence effect, consumption expenditure growth was expected to lift slightly with inflation expected to recede this year, lending some support to household finances.
Should the strength in the value of the rand be sustained, it would also serve to stem new vehicle price inflation, which would enhance affordability, she said. However, Kaplan said these effects would be partially countered by tax increases, should they materialise, in the 2018 Budget.
“Moreover, for as long as consumer credit supply conditions remain tight a particularly robust rebound in passenger vehicle sales would be unlikely,” she said.
Vermeulen said the finalisation of the Post 2020 Automotive Policy Regime, which would replace the current Automotive Production Development Programme, was at an advanced stage. THE RATE OF increase in new car prices continues to decline and has now remained below the inflation rate for the second consecutive quarter.
Used vehicle price increases have now also overtaken the rate of increase in new vehicle prices.
The latest TransUnion vehicle price index released yesterday revealed that new vehicle prices increased by 2.4 percent year-on-year in the fourth quarter of last year from 9.4 percent in the corresponding quarter in 2016.
Used vehicle prices increased by 3.5 percent from 3.3 percent in the same period.
Kriben Reddy, the head of TransUnion Auto, attributed the decline in new vehicle prices largely to the stronger value of the rand in the second half of last year, which allowed manufacturers to reduce new vehicle price increases.
Manufacturers have limited price increases in an attempt to help vehicle dealers to sell more new vehicles.
TransUnion said consumers could take advantage of manufacturer marketing incentives, which included preferential interest rates, trade assistance and manufacturer discounts as well as the slowing down of price increases for new vehicles.
Reddy said the current market was experiencing the real effects of supply and demand.
He said demand was shifting from used to new as the supply of quality used vehicles declined and the demand increased and supported consistent increases in used vehicle prices.
“If we look at where we have come from, the weaker rand saw new vehicle prices increase above inflation in previous reports as input costs were higher.
The change from new to used vehicle purchases was also evident in the financing statistics.
“This significantly widened the pricing gap between new and used vehicles and shifted consumer demand more in favour of used vehicles.
“As we shift out of this market trend, we will see a change in consumer behaviour as they take advantage in the drop of new vehicle prices,” he said.
The index measures the relationship between the increase in vehicle pricing for new and used vehicles based on a basket of passenger vehicles, including 15 top volume vehicle manufacturers.
Reddy said the change from used to new vehicle purchases was also evident in the financing statistics.
He said banks financed 2.2 used vehicles for every new vehicle in the fourth quarter of last year compared to 2.5 used vehicles for every new vehicles in the corresponding quarter in 2016.
In addition, total financial agreement volumes in the passenger market increased by 9 percent between the third and fourth quarters of last year, with new passenger vehicle finance deals increasing by 14 percent and used passenger vehicle finance deals rising by 4 percent in this period.
Of the used vehicles sold, 44 percent were under two years old and 7 percent were demonstration models.