New, used car prices up, with dim outlook

Cur­rency voli­til­ity to blame

The Star Late Edition - - BUSINESS NEWS - Joseph Booy­sen

SOUTH Africa saw a spike in both new and used ve­hi­cles pric­ing dur­ing this year’s first quar­ter, de­spite mount­ing po­lit­i­cal un­cer­tainty.

This is ac­cord­ing to the lat­est Tran­sUnion SA Ve­hi­cle Pric­ing In­dex (VPI) re­leased yes­ter­day.

The re­port ex­am­ines the link be­tween the year-on-year in­crease in ve­hi­cle pric­ing for new and used ve­hi­cles, draw­ing data from a bas­ket of pas­sen­ger ve­hi­cles in­cor­po­rated from the top 15 vol­ume man­u­fac­tur­ers and data col­lected from across the in­dus­try, which is used to cre­ate the VPI.

The re­port showed an in­crease in pric­ing for new ve­hi­cles to 8.8 per­cent, up from 6.6 per­cent in last year’s first quar­ter, while used prices have risen from 2.2 per­cent dur­ing last year’s first quar­ter to 3.7 per­cent in this year’s first quar­ter.

The re­port showed that Volk­swa­gen and Toy­ota cap­tured more than 50 per­cent of the new car mar­ket and lead the used car mar­ket as well, al­though there was not much difference sep­a­rat­ing the top tier from Ford, Hyundai and Mercedes-Benz.

The re­port said the fur­ther in­crease in new ve­hi­cle pric­ing can be at­trib­uted to do­mes­tic re­liance on high vol­umes of im­ported ve­hi­cles that are sub­ject to cur­rency volatil­ity.

Der­ick de Vries, the chief ex­ec­u­tive for auto in­for­ma­tion so­lu­tions at Tran­sUnion, said with the re­cent rat­ings down­grade to junk sta­tus, South Africa could ex­pect lower ac­cess to credit, a weak­en­ing cur­rency, ris­ing in­fla­tion and higher in­ter­est rates.

“Con­sumers will have even less dis­pos­able in­come, which will force in­di­vid­u­als to hold onto their ve­hi­cles for longer in­stead of re­plac­ing them.” New fi­nance De Vries said fi­nan­cial reg­is­tra­tion data had shown an up­swing in con­sumer in­ter­est for used ve­hi­cles with an in­crease of 26 per­cent in new fi­nance deals this quar­ter, while new pas­sen­ger fi­nance deals in­creased by 27 per­cent and the ra­tio be­tween new and used ve­hi­cles fi­nanced had de­creased from 2.5 per­cent to 2.49 per­cent from last year’s fourth quar­ter to this year’s first quar­ter.

“An­other con­tin­u­ing trend is that the per­cent­age of cars, both new and used, be­ing fi­nanced un­der R200 000, re­mains con­stant from last quar­ter, show­ing con­sumers are ‘buy­ing down’ and look­ing for more value for their money.

How­ever, this con­sumer shift opens up new pos­si­bil­i­ties and it is worth not­ing that 40 per­cent of all used ve­hi­cles that were fi­nanced in this quar­ter were less than two years old.

De Vries said, how­ever, that as the de­mand for used ve­hi­cles in­creased and sup­ply came un­der pres­sure, it was likely to push the price up on used ve­hi­cles fur­ther and a shift back to the new car mar­ket.

He said man­u­fac­tur­ers might be forced to pass on the higher pric­ing to con­sumers, which would re­sult in a con­trac­tion of ve­hi­cle sales, as more than 70 per­cent of ve­hi­cles are im­ported and sub­ject to cur­rency volatil­ity.

“Con­sumers also might be faced with in­creased short­term in­sur­ance premiums as a re­sult of in­creased re­pair costs based on the fact that 70 per­cent of parts are im­ported and sub­ject to cur­rency volatil­ity.

“It’s dif­fi­cult not to have a neg­a­tive outlook for the medium- to long-term fu­ture, given our cur­rent eco­nomic re­al­ity.”

Neliswe Baloyi, the head of Absa Ve­hi­cle and As­set Fi­nance, said that while the fi­nance house had not seen the im­me­di­ate im­pact of the down­grade, it would be po­ten­tially dev­as­tat­ing and far-reach­ing for the con­sumer and econ­omy go­ing for­ward.

She said there was a cor­re­la­tion be­tween the eco­nomic performance of the coun­try and the ve­hi­cle sec­tor, and de­te­ri­o­rat­ing ex­change rates and in­ter­est rates would in­crease the cost of ve­hi­cles and the cost of credit to the con­sumer.

“The cost of new ve­hi­cles has in the past three months seen an in­creas­ing con­sumer pref­er­ence to sec­ond hand ve­hi­cles, and the im­pact of the down­grades on the cost of im­ports, will see this trend fur­ther en­trench­ing and may cre­ate its own cy­cle of in­creased prices of used ve­hi­cles due to sup­ply and de­mand fac­tors.” Pru­dence Baloyi said South Africa’s down­grade will im­pact the con­sumer, above all, and pru­dence would need to be key.

She said the con­sumer sec­tor was fore­cast to face con­tin­ued fi­nan­cial pres­sure this year against the back­ground of trends and the outlook for the econ­omy, which would have a neg­a­tive im­pact on con­sumer con­fi­dence, ve­hi­cle sales and the de­mand for and growth in ve­hi­cle fi­nance.

Baloyi said house­hold fi­nances re­mained finely bal­anced against the back­ground of debt lev­els and a sig­nif­i­cant per­cent­age of credit ac­tive con- sumers hav­ing im­paired credit records.

“Fuel prices and ve­hi­cle main­te­nance costs drive trans­port costs and con­sumer price in­fla­tion, im­pact­ing con­sumer and busi­ness spend­ing power.

Ru­dolf Ma­honey, the head of brand and com­mu­ni­ca­tions at WesBank, said dur­ing the first three months of this year new ve­hi­cle sales were pos­i­tive, with the year-to-date growth of 1.9 per­cent.

Ma­honey said, how­ever, that the cab­i­net reshuf­fle and sub­se­quent credit down­grades have had a neg­a­tive im­pact on the rand, which would im­pact the sales of new ve­hi­cles, the ma­jor­ity of which are im­ported.

“WesBank ex­pects a shift to the used car mar­ket. Over the past two years, de­mand for used ve­hi­cles has in­creased dra­mat­i­cally. In March 2015, the ra­tio of used-to-new ap­pli­ca­tions was 2:1, and in March 2017 this ra­tio was 2.4:1,” Ma­honey said.

8.8% Pric­ing in­crease of new ve­hi­cles, in­dex re­port shows


The weak rand re­sult­ing from the eco­nomic down­grades to junk sta­tus is ex­pected to im­pact new car sales.

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