Vehicle price increases outstrip CPI

New vehicle prices are once again increasing at a faster rate than South Africa’s consumer price index (CPI), the measure of the country’s overall inflation rate.

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The latest TransUnion SA Vehicle Pricing Index (VPI) revealed that the rate of increase in new vehicle prices rose to 6.7% in the second quarter of 2023 from 3.9% in the corresponding quarter in 2022.

Used car pricing increased to 9.8% from 8.3% over the same period. The CPI declined to 6.3% in the second quarter of 2023 from 7% in the first quarter of this year and 6.5% in the second quarter of 2022.

The VPI has been below the CPI for the past some 12 quarters or since the second quarter of 2021. The index is based on sales data for all financed vehicles across the industry and measures relative increases in vehicle pricing over any given quarter.

TransUnion says three-year-old used vehicles experienced the biggest increase, with the cost of vehicles in this segment on average 17% more than in the same period last year.

For new vehicles, mid-sport utility vehicles (SUVs) and hatchbacks led the way with a 7.4% year-on-year increase in the second quarter of 2023.

Hybrid and electric vehicles experienced a modest year-on-year increase of 3% in the same period. However, TransUnion says this figure may not be a reliable reflection of the price movement of these vehicles because waiting periods can exceed six months.

TransUnion says the South African vehicle market is grappling with slower demand and tightening credit supply, which is reflected in a decrease of over 6% in vehicles financed in the second quarter of 2023 compared to the same quarter in 2022.

It says dealer sales of passenger and light commercial vehicles (LCVs) also dropped by 6% in the same period.

TransUnion Africa CEO, Lee Naik, says the combination of low growth rates, load shedding, high interest rates and inflation, as well as decreasing disposable income has made consumers cautious about spending. Together with negative consumer and business sentiment, this has created a challenging environment for the vehicle market, he says.

“Consumers are re-prioritising their financial obligations as borrowing costs reach 14-year highs, while some businesses are struggling to maintain operations in a tough economy.

“With lenders managing risk carefully in the current climate, the vehicle market is facing slower demand.

“The volume of vehicles financed in the second quarter of 2023 dropped 6% year-on-year, with dealer sales of passenger and light commercial vehicles falling 6% in the same period,” he says.

Naik added that while the combination of rising vehicle prices and decreasing disposable income has affected sales volumes, TransUnion has seen increased demand for SUVs and LCVs in the consumer market.

He says SUVs made up more than 30% of new and used financed vehicles in the quarter, which suggests that consumers are being more discerning in their purchases and seeking out value in a challenging market.

Naik says the shifts in new and used vehicle pricing, combined with changes in buying preferences, saw the average loan size increase from R370 000 to R390 000 in the past year.

He says the ratio of used-to-new vehicle sales declined from 2.1 used vehicle sales for every new vehicle sold to 1.8 used to one new vehicle sold, which suggests a lack of quality used vehicle stock.

“High quality used vehicles are in short supply because of low new vehicle sales in the previous couple of years.

“Together with the rising cost of vehicle ownership and consumers having no positive equity in their current vehicles, it is increasingly burdensome for consumers to upgrade their vehicles.

“Faced with limited options, they’re turning to older used vehicles that are more affordable, vehicle rental options, or staying out of the market completely. This trend is likely to continue in the near term,” he says.

However, Naik says this trend presents potential opportunities for the servicing industry, vehicle refurbishment centres, certified pre-owned programmes, affordable financing options, and lease and subscription services.

Naik says these are services that increase the longevity of a vehicle’s life and will become more important as the demand for used vehicles continues.

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