Depressed new car sales slow down price increases
THE RATE of increase in vehicle prices slowed in the third quarter of this year, despite the significant depreciation in the value of the rand.
Marketing incentives offered by manufacturers in an attempt to prop up new vehicles sales has contributed to the slowdown.
The latest vehicle pricing index report released by TransUnion Auto Information Solution last week revealed that new car inflation softened in the third quarter to 6.58 percent from 6.91 percent in the previous quarter and 7.63 percent in the first quarter.
Used car inflation also declined in the third quarter to 1.44 percent from 1.53 percent in the previous quarter and 1.67 percent in the first quarter.
Derick de Vries, the chief executive of TransUnion Auto Information Solutions, said on Friday that the index was based on data of actual transaction prices provided by vehicle dealers and financial institutions and not the list price of new vehicles.
“Without the marketing incentives, new car inflation would have been a lot different. The reality is that OEMs (original equipment manufacturers) are subsidising sales with marketing incentives and sales would decline without them,” he said.
De Vries said competition was quite fierce in the new car market and dealers had to rely on parts, after sales and workshop sales to sustain their profit margins. He said new car dealers had not been helped by the continued weakening of the rand in the third quarter, which forced manufacturers to increase new vehicle prices by more than the consumer price index.
“To stimulate sales, extra incentives are offered to consumers to buy and to mitigate the increase in pricing. If there are a lot of vehicles in the system as a result of depressed sales, price inflation will continue to decrease,” he said.
Azar Jammine, the chief economist at Econometrix, said the absolute level of vehicle inflation was still surprisingly low despite the depreciation of the rand.
However, Jammine said the biggest depreciation in the value of the rand had been THE CUMULATIVE effect of interest rates hikes since last year, rather than last week’s 0.25 percentage point increase, is set to dent the performance of the new vehicle and residential property markets.
Jacques du Toit, a property analyst at Absa Home Loans, said on Friday that the latest interest rate hike by the Reserve Bank was unlikely to have a major impact on the residential property market.
But he said interest rates had risen cumulatively by 1.25 percentage points since the beginning of last year.
“That is where the pressure will come from in terms of the impact on the consumer,” he said. against the US dollar rather than the euro, Japanese yen or other vehicle-based currencies.
“This meant the acceleration in import costs of motor vehicles had not been quite as great as one would assume from just looking at the rand
Du Toit said the monthly repayments on a R500 000 mortgage bond over a 20-year term would only increase by R82 because of last week’s interest rate hike, but the cumulative rate hikes since last year had now increased the monthly repayment by R403.
He said the forecast was for interest rates to increase by a further 0.75 percentage points next year.
If this happened, the cumulative 2 percentage point increase in interest rates since last year would increase the monthly repayment on a R500 000 mortgage bond by more than R800 a month, he said.
Du Toit said both the residential and new vehicle markets dollar exchange rate,” he said.
Econometrix compiles a car vehicle price index based on the list prices.
It showed that car list prices increased year on year by 7.6 percent in the first quarter of this year to 5.9 percent in the were interest rate sensitive and the consumer continued to face increasing financial pressure from inflationary increases.
Rudolf Mahoney, the head of brand and communication at WesBank, said last week’s rates hike would affect buyers who had vehicle finance agreements structured around a linked interest rate.
Mahoney said the current average deal value for a new car was R258 000.
If it was initially financed over 60 months using a linked interest rate of 10.5 percent, the interest rate would now change to 10.75 percent, resulting in a monthly instalment that was R32.15 higher at R5 659.08. – Roy Cokayne second quarter and 3.8 percent in the third quarter.
Rudolf Mahoney, the head of brand and communications at WesBank, said marketing incentives had done a great deal to minimise the sales decline in the new vehicle market.