TransUnion VPI Shows Further Increase in South African Vehicle Prices, Decline in New Vehicle Sales

The percentage at which new and used vehicle prices increased more than doubled to close 2016 compared to the same period in 2015, according to the latest TransUnion SA Vehicle Pricing Index (VPI). The Q4 2016 VPI found that the rate of new and used vehicle pricing increased to 9.4% and 3.3% in Q4 2016 from 4.6% and 1.6% in Q4 2015 respectively, suggesting that the trend for purchasing used vehicles is still on the rise.

The VPI 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.

These figures show that the increase in new vehicle pricing has exceeded CPI by an average of 3% for the last three quarters, which has led to an increase in demand for used vehicles. This is supported by statistics shown by the National Association of Automobile Manufacturers of South Africa (Naamsa), which indicates a quarter-on-quarter decline of 12% in the sale of new passenger vehicles and a decline of 9% of new light commercial vehicles from Q4 2015 to Q4 2016.

“The 2% decline in growth of GDP year-on-year compounds the pressure put on vehicle manufacturers to increase their prices, which is adding to the financial strain felt by many households across the country who are in the market for a vehicle,” said Derick de Vries, CEO, Auto Information Solutions at TransUnion. “The wake of a volatile economic climate has domestic vehicle consumers continuing to prefer to hold on to existing vehicles or purchase used vehicles rather than buy a new car.”

“Consumers are financing cheaper new vehicles or more expensive used vehicles, and the used-to-new ratio shows that finance houses are financing 2.5 used vehicles for every one new vehicle,” said de Vries. “Yet the percentage of cars, new and used, financed below R200 000 appears to have remained constant from the last quarter which indicates that this trend will follow in the next year.”

The average monthly repayments have increased from R4 656 to R4 910 year-on-year. This further emphasises that consumers are feeling the strain and are purchasing cheaper vehicles. The volume of deals financed for Q4 2016 decreased by 25% on new vehicles and increased by 8% on used vehicles.

A constant increase in used car loans for values in the region of R190 000 is indicated, which highlights 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. Aggregated new vehicle sales figures from the Naamsa has shown an annual decline of 12.4% in the passenger market, an 8.9% decline in Light Commercial vehicles and an overall decline of 11.4% in the auto industry.

Additional TransUnion data shows that while the higher pricing for new vehicles has stimulated the demand for used vehicles, manufacturers are responding to the decline in new vehicle sales with decreased margins and increased marketing incentives in order to boost sales and reduce the delay of potential customers entering the buying cycle.

According to de Vries, Volkswagen is continuing to outperform other manufacturers and is holding strong in their position as the leader in both new and used financed vehicle sales. Toyota has followed, capturing more than 20% of the new car market, with Ford following closely behind. In the used vehicle market, Volkswagen, Toyota and Ford are also the top performers, yet Hyundai and BMW are closely nudging in, too.

“We see the new car market stabilizing in 2017 with no further contraction. Overall vehicle-related industries need to be aware of the supply and demand factors within both new and used cars. Consumer demand has been shifting towards used vehicles due to higher than CPI new vehicle price increases. However as the supply of good quality used stock diminishes, this will cause a natural shift back to the new car market. Manufacturers and dealers will need to adopt new marketing methods in order to remain competitive. We see the industry partnering with credible players that can drive these efforts through big data and advanced analytics that can identify the right customer at the right time.” concluded de Vries.

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