Local vehicle market depressed

SOUTH AFRICA’s car market remained depressed in the fourth quarter of 2019 – and all indications are that it will remain that way for the foreseeable future, with a challenging macro-economic outlook continuing to drive down vehicle sales, despite fuel price decreases and an interest rate cut, according to the latest TransUnion SA Vehicle Pricing Index (VPI).

The good news for the automotive industry is that the export market continues to grow strongly.

Export sales of South African built cars grew 17.7% in 2019 over the previous year, providing some measure of relief for local manufacturers, said Kriben Reddy, head of Auto Information Solutions for TransUnion Africa.

Reddy explained that the stagnant market reflected low consumer and business confidence, with continuing load shedding and pending decisions on South Africa’s investment rating having a clear impact on both growth prospects and market sentiment.

In the face of these levels of uncertainty, constrained consumers are delaying vehicle purchasing decisions.

“The major issue facing the local automotive industry is the need for structural reform at a macro-economic level. We need to see sustained positive economic growth to get the new car market moving, and the challenge is that in 2019 we weren’t there.

“The problem is, it is unlikely that this situation will change in the short term, indicating that we may continue to battle for some years yet,” said Reddy. Exports provide a bright spot by retaining jobs and keeping production lines going, but they are still a relatively small part of greater sales.”

RISING CAR PRICES

The TransUnion SA VPI for Q4 shows that new vehicle price increases have remained below inflation for more than two years. Despite this, the number of new vehicles financed in Q4 – a key indicator of sales – fell 1.6% compared to the same period a year ago, although the number of used vehicles financed showed a 1.4% increase. The reports shows the usedto-new vehicle ratio has increased from 2.03 in Q4 2018 to 2.09 in Q4 2019, which means that for every new vehicle financed, 2.09 used vehicles are financed. This indicates that consumers are opting for older vehicles as pressure on disposable income increases, said Reddy.

“The challenge is that to get a customer into a new vehicle, you have to get him out of the old vehicle first. In many cases, the very deal structures that are meant to stimulate the market – like offering terms of up to 84 months on car finance – are having the opposite effect by taking customers out of the market for longer.

“If you take a deal over 54 months, wisdom is that you’re going to be back in the market after 36 months.

“Over 84 months, you’re taking that customer out of the market for another 1-2 years,” said Reddy.