SA’s Car Industry Shows Growth in Face of Adversity, but Storm Clouds Loom
South Africa’s automotive industry shrugged off ongoing vehicle price inflation, declining consumer credit health and looming macro-economic storm clouds to record an increase in vehicle sales in the fourth quarter of 2022 – but all indicators suggest a tough year ahead, according to information and insights provider TransUnion.
TransUnion’s latest Vehicle Pricing Index (VPI) showed a sharp year-on-year increase in both new and used vehicle pricing. The new vehicle index jumped from 2% in Q4 2021 to 7% in Q4 2022, with used vehicles moving from 7% to 9.1% in the same period.
The VPI 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. The index is created using vehicle sales data from across the industry.
The number of financial agreements in the passenger vehicle market in Q4 increased by 1.5% year-on-year, with new vehicle deals surging 13% and used vehicle deals decreasing by 3.4% as the market continued to recalibrate following the effects of the pandemic and global supply chain issues. However, negative GDP growth from the prior quarter and low consumer confidence suggest that the industry may face a slowdown in demand as the year wears on, says Kriben Reddy, vice president of auto information solutions at TransUnion Africa.
“The first key indicator for the car market is consumer confidence. Deteriorating credit health is a leading indicator for a challenging trading environment for retailers and lenders. TransUnion’s Consumer Pulse Survey showed 45% of consumers expected to decrease their retail shopping activities in the next three months, 58% expected to cut back on discretionary spending, and 46% expected to hold off on large purchases like appliances and cars,” said Reddy.
“The other key indicator is GDP growth. Historically, we’ve seen that any growth rate below 1% is a likely indicator of a declining new vehicle market. A recent Bloomberg survey suggests the economy is unlikely to grow by more than 0.3% quarter-on-quarter through 2023, with economists predicting GDP growth slowing to 1.2% this year from 2.3% in 2022. At this level, the industry is treading a fine line.”
The ratio of used to new vehicles sold shifted significantly in the past quarter, due largely to ongoing pressure on the supply of quality used vehicles. A year ago, 2.31 used vehicles were sold for every new vehicle; in Q4 2022, this declined to 1.98. In the used vehicle market, 20% of cars sold were less than two years old, and this continues to decrease. Demo models financed made up 4% of used financed deals, which indicates consumers are opting for older vehicles wherever possible, while car prices and pressure on disposable income increase.
Possibly in response to fuel price hikes, people bought more hybrid and electric models in 2022. The number of purchasers grew 10 times for hybrids and six times for electric, albeit off a low base. Together, these two categories made up 2.5% of all new vehicle purchases in 2022.
Consumer buying patterns showed that nearly half (45%) of new and used financed vehicles are hatchbacks, while a quarter (25%) are SUVs. Sedan sales have dropped in the new vehicle market, but have retained market share in the used vehicle market, where supply is constrained. Consumers between the ages of 26 and 40 bought nearly 46% of all vehicles financed, of which 73% were used.
Rising car prices are reflected in the average price points, with the percentage of cars (new and used) being financed under R200 000 dropping to 20% in Q4 2022 from 27% in the corresponding period in 2021. The limited number of quality vehicles available under R200 000 and rising prices also contributed to consumers migrating from the R200k-R300k band to over R300k as consumers continue to look for value in the used vehicle market, with quality used vehicles increasingly difficult to source.
“There’s a trend of consumers purchasing used vehicles that are older than those they purchased previously. This will add to the average age of vehicles on the road and increase opportunities for servicing older vehicles,” said Reddy.
“With disposable income under severe strain, consumers are seeking alternative forms of mobility. This offers a real opportunity for the industry to enable alternative models such as subscription services, which create opportunities for broader mobility inclusion.”