Slow new vehicle sales turn the spotlight on newer used vehicles

Two-year old (or younger) used vehicles are set to become a hot commodity as we enter a prolonged period of slow new vehicle sales.

Volkswagen polo vivo driving 001

According to Faisal Mkhize, Managing Executive of Absa Vehicle and Asset Finance, the market has reset to a new normal of sales of around 30 000 – 35 000 units per month. This, he says, is set to continue for the rest of this year and possibly into 2021.

“The new car sales figures we are seeing now are close to those we recorded around April 2009, after the last global financial crisis. It may take up to two years for consumer spending to return to pre-COVID levels and subsequently for these figures to improve significantly.”

With private buying of passenger and light commercial vehicles around 10 to 15% lower than last year, all eyes are on fleet sales to take up the slack. This has not happened yet, says Naamsa, which reported only 252 fleet sales of the total 33 515 cars, bakkies and trucks sold in August.

Faisal says that fleet companies will need to restock their fleets, since they have completed their post-Christmas de-fleeting cycle. This means that fleets are running lean and that rental companies will return to the market to stock up before this Christmas season.

“Unfortunately, this round of purchases will not be anywhere close to the volumes we saw last year. While the tourism sector has reopened, it remains slow going and our borders remain closed for foreign visitors. Normally, we would see significant vehicle rentals from business travel, but this too remains low as businesses have become accustomed to virtual meetings and are averse to travel and accommodation expenses in a depressed economy.”

While new sales are slow, Faisal notes a significant increase in the sale of two-year old and younger used vehicles. This is set to continue as buyers look for more cost-effective replacements for their current vehicles and as the weak exchange rate drives up prices of brand-new cars.

The biggest source of these newer used vehicles are of course the rental and fleet companies and since they have not restocked yet, they will have less vehicles to sell going forward. This will in turn decrease the availability of newer used vehicles and drive up prices.

“We foresee a shortage of good quality used vehicles in 2021 as fleet companies have less stock to sell due to them not purchasing vehicles for the past 5 months” says Faisal.

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