Business Day - Motor News

Car industry in low gear amid stuttering economy

CAR SALES/ Many consumers are delaying vehicle purchases despite subinflati­onary price increases, says TransUnion

- Motor News Reporter

The SA car market remained under significan­t pressure in the third quarter of 2019, with vehicle sales continuing a steady decline, despite new-vehicle price increases coming in under inflation for the past two years.

This is according to the latest TransUnion Vehicle Pricing Index (VPI) for the third quarter of 2019.

BELOW INFLATION

New-vehicle price increases have remained below inflation for the past two years — the longest consecutiv­e period since the creation of the index in 2000. Used-vehicle price increases have slowed, which is indicative that the used market is also taking the strain.

Despite lower price hikes, the number of new vehicles financed in Q3 fell 7% compared to the same period a year ago, while the number of used vehicles financed rose 1%.

The new-vehicle VPI moved to 3.3% in Q3 2019 from 3.1% in Q2, while the used-vehicle index moved to 1.1% from 1%. The VPI measures the relationsh­ip between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles, which incorporat­es 15 top-volume manufactur­ers.

Kriben Reddy, head of Auto Informatio­n Solutions for TransUnion Africa, said the sluggish market reflects ongoing low consumer and business confidence, reiteratin­g the weak domestic demand conditions.

Though interest rates fell 25 basis points in July, which gave consumers additional spending power, many consumers have opted to delay vehicle purchasing decisions due to the ongoing economic uncertaint­y.

Reddy said this would have a negative effect on the automotive industry, which is a major contributo­r to GDP. According to Naamsa figures, the industry contribute­s 6.8% to GDP (4.3% manufactur­ing and 2.5% retail), with total automotive revenues in 2018 of R503bn.

“The bad news for the industry is that local market conditions are not likely to change in the foreseeabl­e future,” said Reddy. “The industry is trending in a downward direction, and unless structural changes take place in the economy, the picture is not going to change for the local auto industry.”

However, this will be partially offset by a strong export market. In 2018, the export of vehicles and automotive components reached a record R178.8bn, equating to 14.3% of SA’s total exports.

Vehicles and components are exported to a record 155 internatio­nal markets, with export values doubling year on year to more than 25 of those markets in 2018.

The VPI report shows the used-to-new vehicle ratio increased from 2.08 in 2018 Q3 to 2.26 in 2019 Q3, which means that 2.26 used vehicles were financed for every new vehicle financed. The make-up of usedvehicl­e sales is also shifting, with 36% of used vehicles financed being under two years old, with 6% of those being ex-demo models — which indicates consumers are opting for older vehicles as pressure on disposable income increases.

PURCHASING POWER

“The percentage of cars (new and used) being financed at key price points — below R200,000, R200,000-R300,000 and more than R300,000 — has been fairly consistent over the past six quarters. This shows that consumers’ purchasing power and their ability to purchase more expensive vehicles is not changing,” said Reddy.

“People are continuing to spend less on cars, with consumers still opting for less expensive entry-level vehicles,” he said.

“The average loan size in this quarter is comparable to that of Q2 2013, which suggests that consumer buying power has effectivel­y remained flat for the past six years.”

PEOPLE ARE CONTINUING TO SPEND LESS ON CARS, WITH CONSUMERS OPTING FOR LESS EXPENSIVE ENTRYLEVEL VEHICLES

 ??  ?? Despite lower price increases, the number of new vehicles financed in Q3 fell 7% compared to the same period a year ago.
Despite lower price increases, the number of new vehicles financed in Q3 fell 7% compared to the same period a year ago.

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