Tough conditions slow new car inflation

Used vehicle rate speeds up

NEW car price inflation slowed to 5.35 percent in the second quarter of this year from 7.01 percent despite the deterioration in the exchange rate of the rand, according to TransUnion Auto Information Solutions.

Its latest vehicle price index also revealed that new and used car price inflation was converging, with used car price inflation increasing to 2.41 percent in the second quarter of this year from 0.58 percent on a year-on-year basis.

Kriben Reddy, the product development director at TransUnion Auto Information Solutions, said these trends were indicative of the effect of continued economic pressure on the pockets of consumers.

Pricing trend

“Price inflation on used cars typically tracks price inflation of new cars, a trend that has remained consistent over the past few quarters. However, in the current quarter, this trend has changed and pricing is beginning to converge.

“Typically this means that new car price inflation is softening, or increasing at a lesser rate, while the price inflation of used cars is increasing at an accelerated pace.

“The last time this trend was observed was in the third quarter of 2013. It is clearly indicative of reduced consumer confidence and buying power as a result of ongoing economic pressure,” he said.

Reddy added that the impact of macro economic factors was clearly evident in the latest vehicle price index and TransUnion expected the demand for used vehicles to continue.

The quarterly index is compiled from data on monthly sales returns from thousands of dealers countrywide and vehicle financing registrations from the major banks and vehicle finance houses.

Johannes Jordaan at Econometrix said its vehicle price index for light vehicles, com- prising cars and light commercial vehicles and based on vehicle list prices, had not yet been updated for the second quarter but Econometrix was forecasting similar trends.

Jordaan said new light vehicle prices rose year on year by 7.3 percent in the first quarter and Econometrix was forecasting a year-on-year increase of 5.6 percent for the second quarter. He believed the decline in the rate of new vehicle price inflation was attributable to base effects and softer commodity prices.

Trading conditions were also difficult with lower yearon-year sales while a larger share of the top 20 selling vehicles were locally produced models, which might soften the exchange rate impact in the short term, he said.

TransUnion said the increased demand for used vehicles was confirmed by analysis of data on the ratio of new to used vehicles financed, which revealed that 1 new vehicle was financed for every 1.65 used vehicles in the second quarter compared with 1 new to 1.78 used vehicles on a year-on-year basis.

Rudolf Mahoney, the head of brand and communications at WesBank, said the demand for used vehicles, as measured by the number of finance applications received, rose 10 percent year on year in the first half while new vehicle finance applications only increased by 3 percent.

He attributed this trend to the widening price gap between a new vehicle and comparable used vehicles.

Mahoney said this price difference had grown over the last 12 to 18 months, largely because of the continued weakening of the rand.