TransUnion’s Q2 2017 Vehicle Pricing Index

Q2 2017 Vehicle Pricing Index Reports a Significant Drop in New Vehicle Price Inflation

The results of the latest TransUnion Vehicle Pricing Index (VPI) should be music to the ears of consumers who’ve been itching to buy a new vehicle. However, consumers are still concerned if they’ll be able to meet their debt repayments, and as a result, are holding back on replacing their existing vehicles.

The VPI report examines the link between the year-on-year increase in vehicle pricing for new and used vehicles, drawing data from a basket of passenger vehicles incorporated from the top 15 volume manufacturers. Data is collected from across the industry and used to create the VPI.

TransUnion’s Q2 2017 report shows that the VPI for new passenger vehicles has decreased from 8.4% in Q2 2016 to 5.4% in Q2 2017, while the VPI for used vehicles increased from 2.7% to 3.6% over the same period. These results suggest that used vehicles aren’t necessarily as affordable as they were a year ago, while buying new vehicles is becoming easier and more reasonably priced.

“In part, the increasing affordability of new vehicles and the corresponding rise of prices in the used market can be explained by the cyclical nature of the industry,” said Derick de Vries, Chief Executive Officer of Auto Information Solutions at TransUnion. “Availability of quality used vehicles fluctuates often, and with it, their prices. In times when used vehicles are in high demand and short supply – as we currently appear to be experiencing – the option of purchasing a new vehicle instead can often amount to a better deal for the buyer.”

For the past six quarters, consumers have been faced with price increases at a rate well above that of the Consumer Pricing Index (CPI), but this latest VPI shows a promising end to this trend. Due to the deflation in GDP South Africa experienced in Q1, more and more buyers opted for used models rather than new. In anticipation of a slow sales period, total financial agreement volumes between manufacturers and dealers dropped by a sharp 14% between Q1 and Q2.

“Despite the recent political and economic uncertainty gripping the country, interest rates have remained stable and the rand is performing surprisingly well,” said de Vries. “And while there’s no telling what could change over the next few months or years, those consumers who manage to secure a fixed – rather than linked – interest rate when financing their new vehicles should be in a better future financial position.”

Financed deals on new passenger vehicles has declined by 12% from Q1 to Q2 2017, while financed deals on used vehicles declined by 15% within the same period. The used-to-new ratio has decreased marginally from 2.49 in Q1 2017 to 2.41 in Q2 2017. Since quality used vehicles under 2 years old, are currently going through a period of high demand, their newfound popularity is also bound to drive prices up somewhat. The VPI shows that 44% of used vehicles financed are under two years old – strong evidence that South Africans are still finding better value in younger, well-maintained used vehicles.

“In response, dealers and manufacturers are leveraging all available marketing initiatives to boost sales, hoping to overcome their vulnerable sales position. From discounts and favourable repayment terms to trade assistance, and other incentives, manufacturers are under increasing pressure to provide value to prospective buyers. This puts buyers in a strong position to negotiate a better deal on new vehicles – and we anticipate an increase in the sale of new vehicles in upcoming months, along with a marginal decrease in used vehicle sales as the quality of supply diminishes,” concluded de Vries.