Challenging quarter for car market

While new car sales were up, record high fuel prices and a higher VAT rate saw consumers delaying purchasing decisions in the used car segment, which affected the entire market negatively.

Overall, the SA car market has had a challenging quarter. In real terms, cars are cheaper than they’ve been in over a year. But this hasn’t been enough to offset the impact of fuel price hikes of around 20% this year alone, ongoing rand weakness and the prospect of higher interest rates.

According to the latest report, the TransUnion SA Vehicle Pricing Index (VPI) for new and used vehicles dropped significantly in the third quarter of 2018, down to 2.3% and 2.1% respectively from 3.1% and 3.6% last year. Although new finance deals increased by 7% in the quarter, this was offset by a 9% decrease in used car finance deals, seeing an overall drop of 4% in the volume of passenger vehicles financed year on year.

However, it’s not all doom and gloom. While National Association of Automobile Manufacturers’ figures show new passenger vehicle sales down 0.3% and light commercial vehicles down 2.4%, vehicle exports hit a record high last month.

Another encouraging sign was the new VPI being ahead of the used vehicle index for the second consecutive quarter.

In line with TransUnion forecasts, the used-to-new ratio decreased from 2.45 in the third quarter of 2017 to 2.08 in the same period this year (2.08 used cars are financed for every new car).

In all, 41% of used vehicles sold in the quarter were under two years old and 10% were demo models, which indicates consumers are opting for newer models where possible.

The declining VPI trend is expected to continue into the next quarter, with modest increases in volume for new vehicles expected.

The depreciation and volatility of the rand has impacted the input prices of manufacturers, which will affect the future prices of vehicles.

It’s a time to remain cautious and keep a close watch on both affordability levels and credit health. – Kriben Reddy is head of TransUnion Auto in SA