New vehicle prices set to rise

Consumers could be facing a new cycle of new vehicle price increases.

Car lot

New vehicle prices increased by 7.6% in the third quarter of 2020 from 6.5% in the previous quarter and 3.3% in the corresponding quarter in 2019, according to TransUnion's latest vehicle price index report for the third quarter of 2020 released on Thursday.

TransUnion Africa’s vice president for auto information solutions, Kriben Reddy, said new vehicle pricing rose in the third quarter of 2020 by more than the inflation rate for a second successive quarter following 10 quarters of vehicle price increases remaining below inflation.

Reddy warned that this “could herald a cycle of further increases”, adding that new vehicle pricing in South Africa is not driven by demand.

“As around 70% of our vehicles are imported, factors like exchange rates and tax duties play a big part in the price hikes.

“The used car market, on the other hand, is entirely demand driven, so the fact that we’re seeing a rise in the prices of used cars shows a clear increase in demand for second-hand vehicles,” he said.

The rate of increase in used vehicle prices rose to 2.3% in the third quarter of 2020 from 1.1% in the same quarter in 2019, according to TransUnion.

The used-to-new vehicle ratio also increased marginally to 2.35 used vehicles for every new vehicle financed in the third quarter of 2020 from the 2.31 used vehicles financed for every new vehicle financed in the third quarter of 2019.

Despite the increase in vehicle prices, Reddy said the South African car market showed signs of resilience in the third quarter of 2020, bouncing back from an all-time low in the second quarter to record month-on-month increases in the number of new and used cars financed in both August and September 2020.

Reddy said total financial agreement volumes in the passenger market showed an expected 21% year-on-year decline from the third quarter in 2019 but, albeit off a low base, the market overcame rising vehicle prices, difficult trading conditions and uncertainty to record a 35% month-on-month increase in August and 45% in September 2020.

“This suggests that while challenging times still lie ahead, the industry could be on the road to recovering from the total shutdown caused by the COVID-19 pandemic,” he said.

Reddy said the make-up of used vehicle sales shows that 36% of vehicles financed are under two years old, with demo models making up 6% of used financed deals.

“This indicates consumers are opting for older vehicles as pressure on disposable income increases,” he said.

Reddy added that the percentage of both new and used cars being financed moved back towards over R300 000 in the third quarter of 2020, which is the highest level since TransUnion started tracking this information in 2011.

“While this could be seen as a positive sign, it is also indicative of segment movements through higher vehicle pricing, premium brand used vehicles financed and a shift of consumers purchasing bakkies,” he said.

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