Economic Pressures Push up Car Prices and Squeeze Sales in South Africa
Tough economic conditions have contributed to higher vehicle prices and lower sales volumes, as consumers increasingly look to more affordable cars or hold onto their vehicles for longer periods.
This is according to Derick de Vries, CEO: Auto Information Solutions at TransUnion who says South Africa’s low GDP growth rate, increases in interest rates, higher inflation, a weakening rand, lower consumer confidence and looming possibility of further sovereign ratings downgrades have all played a role in price increases and lower sales levels.
The TransUnion SA Vehicle Pricing Index (VPI) for new and used vehicle sales increased substantially to 6.6% and 2.2% in Q1 2016 from 4.6% and 1.6% in Q4 2015 respectively. The index 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. Vehicle sales data collated from across the industry was used to create the index.
“The index indicates that consumers are enduring substantial increases on both new and used vehicles, with higher than Consumer Price Index (CPI) on new cars. These higher new car prices will push consumers towards used vehicles, to buy down within the new space and will also force some consumers out of the market as they will tend to hold on to their vehicles for longer than they normally would,” de Vries says.
He adds that this is evident in the percentage of both new and used cars being financed below R200 000, which has increased substantially from 37% to 51% between Q4 2015 and Q1 2016 respectively.
“This indicates a shifting emphasis on the value proposition that consumers place on their vehicles, as they look for the maximum amount of value from a car.”
TransUnion’s financial registrations data indicates a drop of around 34% and 16% on new and used financed deals respectively in Q1 2016 compared to Q1 2015. A trend which, if continues, will see market contraction for the third year in a row.
“Although manufacturers have continued through Q1 2016 with marketing incentives, with discounts ranging on average around 5%, this has had little effect on an already depressed market,” says de Vries.
In terms of volume of sales, Ford, Toyota and Volkswagen are the only manufacturers which appear in the top 5 for both new and used passenger car volumes from all sectors.
“Overall, the current economic constraints are affecting both the consumer and most vehicle-related sectors, including dealerships, finance houses and the insurance industry. In such times, dealers need to focus on marketing and sales incentives and, most importantly, streamline their operations. The latter can be achieved by employing credit solutions to pre-vet customers in order to know exactly what the consumer can afford, avoiding lengthy sales processes and increasing sales conversion rates.”
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