South Africa’s Auto Sector Arrives at a Crossroads

• Data for Q1 2024 shows overall sales volumes remain low across both used and new vehicles
• Nominal loan amounts have grown but are not keeping pace with rising vehicle costs as consumers grapple with a decrease in disposable income
• Consumer buying patterns show that a growing number of households are opting for one multipurpose vehicle instead of maintaining multiple vehicles

The South African automotive sector continues to grapple with significant macroeconomic challenges. Persistently high interest rates and negative GDP growth have eroded both consumer and business confidence, leading many to defer long-term financial commitments, including vehicle purchases. Announcing TransUnion’s Q1 2024 Vehicle Pricing Index (VPI) this week, TransUnion Africa CEO Lee Naik says that this cautious sentiment is expected to persist.

“Consumers are showing hesitation almost across the board. Even as consumers await economic stability and post-election clarity before making major asset purchases, those who purchased vehicles post-2021 have not yet reached a point where their loan balances can be offset by the trade value of their vehicles, and we also see consumers who opted for high balloon payments at the point of purchase holding on to their vehicles for longer.”

NAAMSA data for Q1 2024 reveals significant shifts in the vehicle finance landscape: the sale of new passenger vehicles, and the total number of vehicles that were financed in the period, decreased by 8.4% and 10.6%, respectively, compared to Q1 2023. This is despite relatively low comparative price increases of 4.7% for new vehicles (compared to 6.3% in Q1 2023) and 2.1% for used vehicles (8.3% in Q1 2023), according to the Q1 2024 VPI.

While overall sales volumes remain low across both used and new vehicles, TransUnion VPI data shows that the used-to-new ratio of financed vehicles has shifted from 1.86 in Q1 2023 to 1.15 in Q1 2024, indicating a growing preference for new vehicles among buyers entering the market, likely driven by these smaller price hikes in conjunction with incentives being offered by dealers.

The average loan value for financed vehicles increased to R391,000 in Q1 2024, up from R387,000 in Q1 2023. However, this increase remains below the inflation rate for both new and used vehicle prices, as well as the Consumer Price Index (CPI). “Nominal loan amounts have grown but are not keeping pace with rising vehicle costs. This reflects both a decrease in disposable incomes and a diminished appetite among consumers for taking on expensive new credit responsibilities,” says Naik.

Consumer buying patterns show that a growing number of households are opting for one multipurpose vehicle instead of maintaining multiple vehicles, with many substituting their transport demands with ride-hailing services like Bolt and Uber. Subscription services are also playing a role in helping consumers who have been precluded from longer-term traditional finance products.

Despite the challenges, the Q1 2024 VPI highlights opportunities for financial inclusion among individuals previously excluded from credit markets. “We see opportunities to leverage inclusive finance strategies to expand credit access to underserved markets. By interpreting the available data to present innovative financial products to underserved consumers, the industry can potentially increase the volume of financed vehicles and stimulate market growth.”

The index also suggests that there are opportunities for financiers to target consumers who may be looking to refinance their existing vehicles, while insurers can better manage their risks by re-assessing the value of their customers’ vehicles.

“The South African vehicle market is navigating a complex economic landscape resulting in modest shifts in consumer behaviour and market dynamics. This environment is expected to keep vehicle sales suppressed until greater economic stability and consumer confidence return. The ability to innovate, enhance financial inclusion, and adapt to the evolving mobility landscape remain crucial for achieving sustainable growth in the industry,” concludes Naik.

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Notes to Editors:

The TransUnion Africa Vehicle Price Index (VPI) measures the relationship between the increase in vehicle pricing for new and used vehicles, and uses vehicle sales data collated from across the industry.

Our VPI now includes data on new vehicle asset financing from SACRRA. SACCRA data is made available to the industry at the end of a quarter for the preceding quarter. Going forward, TransUnion’s SA VPI will be released in the third month of the following quarter.