Bleak economic outlook means buying used cars, or hanging on to the old one
TransUnion AIS’s vehicle pricing index notes an upswing in used vehicle and predicts the industry will fall short of WesBank’s forecast of a 1.7% increase in sales in 2017
If you’re in the market for a new set of wheels‚ now is not the time to buy. A bleak economic outlook is set to play havoc with South Africans’ love of the latest new cars‚ forcing many to settle for used vehicles or to hang on to their existing cars for a lot longer.
That’s the prediction of Derick de Vries‚ CEO of TransUnion AIS‚ who released the company’s annual vehicle pricing index (VPI) on Thursday morning.
Newish used cars look set to be in even more demand — 40% of all used vehicles financed so far this year were less than two years old; 25% of them less a year old.
Between them‚ Volkswagen and Toyota capture more than 50% of the new car market‚ and the two automotive giants also lead the used car market.
"But there is not much separating the top tier from Ford‚ Hyundai and Mercedes-Benz‚" De Vries said. "With the recent ratings downgrade to junk status‚ we expect to see lower access to credit‚ a weakening currency‚ rising inflation and even higher interest rates‚ meaning consumers will have even less disposable income."
De Vries said that it’s difficult not to have a negative outlook for the medium-to long-term future‚ given our current economic reality.
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 sold by 15 of the country’s top-selling manufacturers. The industry relies on these prices to determine the trade-in and retail prices of used cars.
De Vries predicts the industry will fall short of WesBank’s forecast of a 1.7% (557,000) increase in total sales in 2017: "With the possibility of a recession looming‚ should the rand depreciate to R16 or R17 against the dollar‚ this will have an extremely negative effect on the vehicle index for new cars."
"Manufacturers may be forced to pass on the higher pricing to consumers‚ which will result in a contraction of vehicle sales‚ as more than 70% of vehicles are imported and subject to currency volatility," he said.
There’s been an upswing in consumer preference for used vehicles‚ De Vries said‚ with an increase of 26% in used-car finance deals in the first quarter of 2017.
The ratio between financed new and used vehicles decreased from 1:2.5 in the last quarter of 2016 to 1:2.49 in the first quarter of this year‚ he said. "This means that for every new vehicle‚ 2.49 used vehicles are financed."
The percentage of cars under R200,000 being financed‚ both new and used‚ remains constant from last quarter — an indication that consumers are "buying down" and looking for more value for their money..