Swing from supply to demand pressures - TransUnion

We are not out of the woods yet, says TransUnion.

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TransUnion Africa Auto Information Solution Vice President, Kriben Reddy, says that vehicle dealers are facing a new challenge now that the supply issues have largely been resolved.

“Now that dealers have largely resolved supply issues, there’s going to be an increasing demand problem as the effects of inflation and interest rates start to bite into consumers’ wallets.

“A moderation in transport inflation, thanks to fuel price decreases… offset a build-up in food and clothing price pressures, but we expect price inflation to remain sticky at elevated levels,” he says.

Reddy says the new car market is showing signs of normalising as supply levels stabilise, but this may not be enough to ward off a possible slowdown in car sales as consumers look to cut discretionary spend in the face of inflationary pressures and rising interest rates.

He says TransUnion’s latest Consumer Pulse study revealed that more than half of South African consumers have cut back on their spending and expect to cut discretionary spending even further in the coming months.

“One consequence of this is that consumers will hold onto their cars for longer and the industry is going to have to get creative to get them back into the market,” he says.

Reddy’s comments coincided with the release of the latest TransUnion vehicle price index (VPI), which shows that new vehicle prices accelerated to 6.8% in the third quarter of 2022 from 3.8% in the third quarter of 2021.

This follows the rate of change in new vehicle prices surprisingly declining to 3.9% in the second quarter of this year from 6.0% in the first quarter. However, the rate of change in new vehicle price increases is still lagging South Africa's inflation rate.

Headline consumer inflation edged up to 7.6% in October this year from 7.5% in the previous month.

TransUnion reported that used vehicle prices rose 9% in the third quarter of 2022 from 5.9% in the corresponding quarter in 2021, with the ratio of used to new vehicles sold shifting significantly.

Reddy says 2.41 used vehicles were sold for every new vehicle in the third quarter of 2021 but this declined to 2.1 used vehicles sold for every new vehicle sold in the same quarter of this year.

“In the used vehicle market, 25% of cars sold were under than two years old and this continues to decrease as the supply of quality used vehicles remains under pressure,” he says.

Reddy says the overall number of financial agreements in the passenger vehicle market continued the long climb back towards pre-pandemic levels, increasing by 8% year-on-year in the third quarter. He says new vehicle volumes soared 21% in this period compared to a 3% rise in used vehicle volumes.

Reddy attributes this partly to consumers re-entering the market as new vehicles became more readily available following supply chain issues. He says 25% of used cars sold were under than two years old and this percentage continues to decrease as the supply of quality used vehicles remains under pressure.

Reddy adds that demonstration models financed made up 4% of used financed deals, which indicates that consumers continue to opt for older vehicles as quality supply diminishes and pressure on disposable income increases.

Turning to consumer buying patterns, Reddy says 34% or more than one in three new and used financed vehicles are hatchbacks while 21% or more than one in five are sport utility vehicles (SUVs).

Reddy says sedans have retained their market share although this is mainly in the used vehicle market where supply is constrained. Consumers between the ages of 26 and 40 bought nearly half of all vehicles financed, of which most were used, he says.

Reddy says there has been a year-on-year upward movement in the price points of new and used cars being financed, with a clear shift from under R200 000 into the over R300 000 bracket.

He says this is partly because there are a limited number of quality vehicles available under R200 000 given the high demand in the market and limited supply.

Reddy says this lack of supply has also contributed to consumers migrating from the R200 000 to R300 000 band to over R300 000 as they continue to look for value in the used vehicle market.

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