Vehicle prices above inflation rate in Q4 2020

The South African automotive industry faces a challenging 2021, with new-vehicle prices continuing to climb well above the inflation rate in a market already severely constrained by the financial effects of the COVID-19 pandemic.

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This is according to the latest TransUnion SA Vehicle Pricing Index (VPI), which shows vehicle prices rose above the inflation rate for the third successive quarter in Q4 2020 at a time when consumers were financially constrained and many car dealers were battling to stay in business. According to Kriben Reddy, vice-president of auto information solutions for TransUnion Africa, this trend could herald further car price increases in 2021.

“The positive indicators of lower petrol prices, interest rates and inflation are not enough to move consumers into new vehicle purchases at this stage. Consumer confidence remains low as a result of the COVID-19 pandemic and ongoing unemployment rate concerns, negative economic growth rates and pressure on disposable income are all having an impact,” said Reddy.

As expected, total financial agreement volumes in the passenger vehicle market decreased by 9% in Q4 2020 compared with the same period in 2019. New-vehicle finance deals were down 14.8% and used vehicles down 6.2%. At the same time, the VPI for new vehicles rose sharply to 9.6% in Q4 2020 from 2.9% in Q4 2019, with the used vehicle VPI rising to 2.9% from 1.2% over the same period.

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

The used-to-new vehicle ratio in Q4 2020 remained consistent, at 2.31:1. This means that for every new vehicle financed, 2.31 used vehicles were financed. The make-up of used vehicle sales shows that only 35% of vehicles financed are under two years old, with demo models making up 6% of used financed deals. This indicates an ongoing preference for older vehicles while pressure on disposable income continues.

The percentage of cars (new and used) being financed saw a clear movement out of the below-R200 000 bracket towards vehicles in the R200 000 to R300 000 bracket. This reflects the fact that as inflation drives new-car prices up, there is a greater demand for used vehicles, which in turn drives used vehicle prices up as well.

Although many dealers and industry players focused on survival and struggled to keep their heads above water in 2020, Reddy believes that in 2021 there will be a marked shift to refocusing and recovery as the industry looks to adapt to new buying patterns and customer behaviours. This includes repurposing local manufacturing plants to meet the growing demand for electric vehicles, and dealers looking to digital tools to transform the buying and selling experience for their consumers.

“This is a tough time for dealers, and 2021 will still be a challenging year. We are confident that we will see an increase in vehicle sales over 2020, but the real reference will be how quickly we can recover to 2019 levels,” Reddy concluded.

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