New car price hikes set low

AG­GRES­SIVE DEALS: RANGE OF IN­CEN­TIVES

The Citizen (KZN) - - Business - Roy Cokayne

Deal­ers pull out stops as new ve­hi­cle mar­ket is likely to be un­der con­tin­u­ous pres­sure this year.

There’s good news for those en­ter­ing the new ve­hi­cle buy­ing mar­ket this year, with price in­creases ex­pected to be low and deal­ers of­fer­ing a range of mar­ket­ing in­cen­tives, from trade-in as­sis­tance to dis­counts on ve­hi­cles.

This is the view of Kriben Reddy, head of auto in­for­ma­tion so­lu­tions at Tran­sUnion, which on Tues­day re­leased its lat­est ve­hi­cle price in­dex.

Mark Dom­misse, chair of the Na­tional Au­to­mo­bile Deal­ers’ As­so­ci­a­tion, says peo­ple in the en­try level ve­hi­cle mar­ket are be­ing of­fered very ag­gres­sive deals be­cause of the mix of cars be­ing bought and the re­duc­tion in the new ve­hi­cle mar­ket to about 536 000 units last year from about 550 000 in 2018. Dom­misse says over­all light com­mer­cial ve­hi­cle sales fell last month by a whop­ping 16.3% com­pared to sales in Jan­uary last year, with dealer sales fall­ing 15%.

This is “telling a tale” about con­sumer af­ford­abil­ity in this seg­ment, he says. “That is quite scary, so I think we are go­ing to be in for a tough ride, but I do think the en­try-level seg­ment in the mar­ket has a lot of vol­ume to it and the man­u­fac­tur­ers will all prob­a­bly push vol­ume in that di­rec­tion by of­fer­ing in­cen­tives like free in­sur­ance for a year and quite good bank fi­nance deals. That is where the mar­ket uptick will prob­a­bly come.”

Azar Jam­mine, chief econ­o­mist at Econometri­x, ex­pects con­tin­ued sup­port of brands from man­u­fac­tur­ers through mar­ket­ing in­cen­tives. He points to how “good deals” helped boost new ve­hi­cle sales in Novem­ber and De­cem­ber last year – and how these sales fell away in Jan­uary when these in­cen­tives were no longer avail­able.

While Jam­mine says the new ve­hi­cle mar­ket will be un­der con­tin­u­ous pres­sure this year, he ex­pects re­place­ment de­mand to pre­vent it from col­laps­ing. He an­tic­i­pates to­tal sales for the year to be slightly neg­a­tive com­pared to 2019 at about -2% or -1%.

Reddy says the chal­lenge fac­ing this sec­tor is that to get a cus­tomer into a new ve­hi­cle, you have to get them out of the old ve­hi­cle first. He stresses that in many cases the very deal struc­tures that are meant to stim­u­late the mar­ket, such as 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, con­ven­tional wis­dom is that you are go­ing to be back in the mar­ket af­ter 36 months – while over 84 months, you are tak­ing that cus­tomer out of the mar­ket for an­other one to two years, he says.

Reddy adds that the used-to-new ve­hi­cle ra­tio has in­creased, ris­ing from 2.03 used ve­hi­cles fi­nanced for ev­ery new ve­hi­cle in the fourth quar­ter of 2018 to 2.09 in the same quar­ter last year.

In the used ve­hi­cle mar­ket, more than 36% of ve­hi­cles are un­der two years old, with 6% of those be­ing ex-demo mod­els, he says.

He adds that the per­cent­age of new and used cars be­ing fi­nanced below R200 000, be­tween R200 000 to R300 000 and over R300 000 has re­mained broadly con­sis­tent over the past seven quar­ters. This means that af­ter al­low­ing for in­fla­tion, con­sumers are spend­ing less on cars, and opt­ing for less ex­pen­sive en­try-level ve­hi­cles.

Pic­ture: Money­web

SWEETNERS. Free in­sur­ance for a year and good bank fi­nance deals are among the of­fers buy­ers of en­try-level ve­hi­cles should look out for.

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