Automotive Market Sees a Glimmer of Hope as Manufacturers and Dealerships Incentivise Sales

The South African vehicle market continues to navigate challenges in a tough economic environment characterised by cost-of-living challenges, higher fuel costs, and currency depreciations. These factors have contributed to a noticeable decline in vehicle sales, with NAAMSA reporting that new passenger vehicle sales reduced by 6.3% from Q4 2022 to Q4 2023, and TransUnion data showing that finance for vehicles decreased by over 4% over the same timeframe.

Announcing TransUnion’s Q4 2023 Vehicle Pricing Index (VPI) this week, TransUnion Africa CEO Lee Naik said that these challenges have resulted in a notable decline in vehicle sales and financing. While the trend of market contraction is anticipated to persist, manufacturers and dealerships are stepping up to the challenge with efforts to aid consumers to enter or re-enter the auto market.

Innovative actions that manufacturers and dealerships are taking to stimulate growth in the sector include discount structures, incentives, trade assistance, interest rate reductions on loans, and a focus on monthly payments rather than gross prices. “These efforts show innovation in an otherwise stagnant sector,” says Naik.

A significant market trend is the notable increase in the average loan amount for financed vehicles. TransUnion data shows that, in Q4 2023, the average loan value increased to R396,000, up from R386,000 in Q4 2022. This 2.5% average loan value growth comes off the back of CPI of 5.1% in December 2023 and a new vehicle price increase of 6.3% (Q4 2023 vs. Q4 2022). Despite this increase in loan values, there has been an overall reduction in new accounts opened over the last two years, further confirming a decline in purchasing power and volume.

The net effect of these economic markers is that lower net income consumers are being priced out of the market; they either do not qualify for vehicle loans or are unwilling to add a new debt burden to their monthly budgets.  

This is where the industry is evolving to enable economic participation. “Consumers are benefitting from the introduction of new subscription-based and ‘vehicle on demand’ models and services. Renting, station-based car sharing, free-floating car sharing, micro-mobility services, ridesharing, and ride-hailing options are increasingly being brought to market to make transport affordable for consumers, with the end result promoting financial inclusion, furthering economic empowerment, and stimulating economic growth,” says Naik.

The shift in the ratio of used-to-new vehicles being financed, from 1.98 in Q4 2022 to 1.2 in Q4 2023, also signifies a significant change in consumer behaviour driven by factors such as improved new vehicle stock availability, an interest rate that is perceived as being stable, and innovation at dealership level. These factors are leading to consumers increasingly opting for new over used vehicles.

“Overall, the macroeconomic climate remains incredibly challenging for consumers and continues to affect buying power and spending habits. While the data sets in this Index end in Dec 2023, the 2024 market indicators continue to tell a difficult story for the South African consumer – Q1 NAAMSA sales figures remain depressed, and the cost of owning, running and maintaining a vehicle continue to increase, evidenced by another petrol price increase on May 1.  The South African vehicle industry’s ability to adapt and innovate, particularly in embracing new mobility trends, will be essential for sustainable growth,” concludes Naik.