Vehicle price inflation climbing

New vehicle price increases eased to 6.1% in the second quarter of 2021 from 8.8% in the first quarter and 6.5% in the second quarter of 2020, according to TransUnion Africa Auto Information Solutions.

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However, used vehicle prices rose to 4.9% in the second quarter of 2021 from 1.6% in the same quarter in 2020.

Kriben Reddy, the vice president of TransUnion Africa Auto Information Solutions, says its vehicle price index (VPI) showed a dramatic rise in the price of used cars as demand for quality used stock surged.

Reddy added that while new vehicle finance deals increased year-on-year by 52% in the second quarter of 2021, the number of deals for used vehicles increased by 70%.

He says the VPI for used vehicles is expected to surpass the new vehicle VPI this year.

The VPI is created using vehicle sales data from across the industry and measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles, which incorporates the 15 top volume manufacturers.

TransUnion says the used-to-new vehicle ratio continued to climb and stood at 2.67 used vehicles financed for every new vehicle financed in the second quarter of 2021 compared to 2.31 in the second quarter of 2020.

Reddy says 35% of used vehicles financed were under two years old, with the number of demo models financed dropping from 6% in the first quarter of 2021 to 4% in the second quarter, which indicates consumers are opting for older vehicles as pressure on disposable income increases.

He says the percentage of both new and used cars being financed below R200 000, between R200 000 and R300 000, and over R300 000 saw lower volumes in the lowest bracket and more activity in the over R300 000 bracket.

“This is owing to ongoing price increases, which have pushed many new vehicles over the R300 000 price point.

“There is also a growing trend of consumers downgrading from a two-car household and opting for one slightly more expensive vehicle, for example, trading in two sedans for one SUV. This is expected to continue in the upcoming months as vehicle prices increase in real terms,” he says.

Reddy says that while the macro-economic outlook has been improving, consumer confidence remains low, with household finances remaining under pressure and impacting consumers’ disposable income.

“We’re seeing the impact of this clearly reflected in the car market as consumers look for more affordable options.

“Overall, the market has shown signs of recovery from last year, but new obstacles await.

“The next six months will be interesting for the automotive sector as the effects of consumer uncertainty and disrupted supply chains will inevitably delay purchases, which will cause dealers to rethink their approaches and seek alternative streams of income,” he says.

Mark Dommisse, the chairperson of the National Automobile Dealers’ Association (Nada), says there has been very strong pricing in the used car market this year as a result of a shortage of used vehicle stock and the sharp increase in new vehicle prices because of the devaluation of the rand.

Dommisse says manufacturers have continued to support their dealers “quite considerably during this time of volume decline” to ensure the financial health and viability of their dealers.

He says the low interest rates, at the same time, have also helped to sustain dealers.

“If interest rates are raised by 0.25%, the market will catch a wobble. The government has been exceptionally supportive and, as a result of that, people are still buying and financing cars.

“The banks have a very healthy appetite to finance and have been able to be very supportive. The one thing that is saving our country at the moment is the low interest rates. If interest rates had been climbing rapidly, we would be in a lot of trouble,” he says.

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