SA Car Sales Stay in the Slow Lane, in Spite of Lower Inflation

The South African car market continues to struggle, with the bulk of the buying activity currently taking place in the used car sector as financially stretched consumers increasingly opt for older cars at lower price points. This is according to the latest TransUnion SA Vehicle Pricing Index (VPI) for Q2 2019.

The number of new and used vehicles financed have fallen 7% and 2% quarter on quarter respectively, according to the TransUnion VPI report. The drop in sales is in spite of the VPI for new and used vehicle pricing remaining below inflation, with used vehicle pricing increases at their lowest since Q2 2014.

The new vehicle VPI moved to 3.1% in Q2 2019 from 2.6% in Q1, while the used vehicle index fell sharply from 2.5% to 1%. The index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles, which incorporates fifteen top volume manufacturers. Vehicle sales data is collated from across the industry to create the index.

“There is a direct correlation between current macro-economic conditions – the country’s negative GDP growth of 3.2% for Q1 is the lowest it’s been in the past 10 years – and the constrained new vehicle market,” said Kriben Reddy, head of Auto for TransUnion Africa.

“Overall, the South African car market had another challenging quarter, although petrol price decreases forecasted in July should excite consumers’ pockets. The signs for new vehicle sales are looking stagnant going into the second half of the year as dealers push sales through guaranteed buy-back options and marketing initiatives to suit the consumers’ pocket,” said Reddy.

“What this means is that consumers are in a position of power when purchasing new or used vehicles, with price increases well below inflation for the past two years as manufacturers try to stimulate the market through bargains and discounts.”

The TransUnion VPI report shows the used-to-new vehicle ratio increased from 2.05 in 2018 Q2 to 2.16 in 2019 Q2, which means that 2.16 used vehicles were financed for every new vehicle financed. The make-up of used vehicle sales is also shifting, with 34% of used vehicles financed under two years old, with 6% of those being ex-demo models – which indicates consumers are opting for older vehicles as pressure on disposable income increases.

People continue to spend less on cars, with a clear shift back to vehicles under R200,000 as consumers continue to feel strain on their disposable income. The percentage of cars (both new and used) being financed below R200,000 is at levels last seen in Q2 2013, which effectively means that consumers’ purchasing power has not changed since that time and has actually decreased in real terms (that is, taking inflation into account).

“While we anticipate car sales will remain under pressure for the rest of the year, we’re cautiously optimistic about 2020. Although the Q1 2019 GDP fell sharply, our expectations are that we will see a slight improvement in Q2 and Q3, which should positively impact the car market,” said Reddy.

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