Cost of motoring continues to rise
Recent cuts in fuel prices and interest rates provide respite but owning a car is still 28% higher than five years ago
The interest rate cut and drop in the petrol price during July is good news for consumers. However, the cost of motoring continues to rise steadily. The monthly mobility basket, which consists of vehicle instalments, fuel, insurance and maintenance fees, has risen to R7,851.
This is 3% higher than last year and 28% higher than five years ago when monthly costs amounted to R6,144.
These costs are reflected by the WesBank Mobility Calculator, a tool that the bank uses to track and calculate motoring expenses. The total mobility basket comprises all the fees involved with vehicle ownership.
These expenses are regularly updated to reflect inflation, interest rates and other fluctuating costs, and are based on an average entry-level vehicle that travels about 2,500km a month.
Vehicle instalments and fuel remain the largest portions of the monthly mobility basket, accounting for 80% of expenses. However, when viewed as a portion of the monthly motoring budget, fuel spend is significantly less in 2019 than five years ago.
Fuel spend accounts for 35% of the total in 2019, while vehicle instalments are 45%. This contrasts with the mobility basket in 2014, where fuel spend and vehicle instalments cost about the same amount.
“In 2014, fuel prices were on the rise and monthly fuel spend was roughly equal to an entry-level vehicle’s instalment,” says Ghana Msibi, WesBank executive head of motor. “This is no longer the case, and despite monthly fuel price hikes from February to June 2019, this month’s fuel prices are actually lower than they were during July last year. This does not mean the cost of motoring is lower.”
Vehicle instalments and insurance premiums account for the highest increases over the past five years, mainly as a result of vehicle price inflation. From 2014 to 2019, vehicle instalments increased 43% while insurance premiums grew 40%. In comparison, fuel spend and maintenance fees only grew 11% and 8% respectively over the same period.
WesBank’s data indicates favourable vehicle price inflation over the past year, with consumers only spending marginally more on new and used vehicles. In June, the average new vehicle financed through WesBank cost R321,715, while the average used vehicle cost R215,848. This reflects only a 3% and 2% year-on-year change for new and used vehicles respectively. However, the interest rate cut will be welcomed by consumers with vehicle and home finance.
The bulk of the buying activity currently takes place in the used-car sector as financially stretched consumers increasingly opt for older cars at lower prices. This is according to the latest TransUnion SA Vehicle Pricing Index (VPI) for the second quarter of 2019.
The index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles.
The number of new and used vehicles financed has fallen 7% and 2% quarter-on-quarter respectively, according to the TransUnion vehicle pricing index (VPI) report. The drop in sales is in spite of the VPI for new and used vehicles remaining below inflation, with used-vehicle pricing increases at their lowest since the second quarter of 2014.
“There is a direct correlation between current macro-economic conditions – the country’s negative GDP growth of 3.2% for Q1 is the lowest it’s been in the past 10 years – and the constrained new vehicle market,” said Kriben Reddy, head of auto for TransUnion Africa.
“Overall, the South African car market had another challenging quarter, although petrol price decreases forecast in July should excite consumers’ pockets. The signs for new-vehicle sales are looking stagnant going into the second half of the year as dealers push sales through guaranteed buy-back options and marketing initiatives to suit the consumers’ pocket,” said Reddy.
“What this means is that consumers are in a position of power when purchasing new or used vehicles, with price increases well below inflation for the past two years as manufacturers try to stimulate the market through bargains and discounts.”
The TransUnion VPI report shows the used-to-new vehicle ratio increased from 2.05 in 2018 quarter two to 2.16 in 2019 quarter two, which means that 2.16 used vehicles were financed for every new vehicle financed.
The make-up of used vehicle sales is also shifting, with 34% of used vehicles financed under two years old, and 6% of those being ex-demo models, which indicates consumers are opting for older vehicles as pressure on disposable income increases.
People continue to spend less on cars, with a clear shift back to vehicles under R200,000 as consumers continue to feel strain on their disposable income, says Reddy.
“Interest rate cuts and lower fuel costs are always welcome, but this shouldn’t influence a vehicle purchase,” says Msibi.
“Motorists should take a holistic view when planning a car purchase and ensure that their budgets include the instalment amount, insurance costs, fuel money and savings for maintenance and services. Their budgets should also be able to absorb higher costs a few years down the line. The smartest move is to plan for rising costs over the duration of the finance contract.”
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