The used-to-new vehicle ratio has increased post-lockdown. For every new vehicle financed, 2.31 used vehicles are financed. Picture: SUPPLIED
The used-to-new vehicle ratio has increased post-lockdown. For every new vehicle financed, 2.31 used vehicles are financed. Picture: SUPPLIED

New-vehicle prices in SA rose 6.5% in the second quarter of the year, the first above-inflationary hike since 2017 and a sharp spike over the 3.1% increase in Q2 2019.

This has caused a consumer trend to buy cheaper cars as pressure on disposable income increases, according to the latest TransUnion SA Vehicle Pricing Index (VPI), which measures the relationship between the increase in pricing for new and used vehicles from 15 top volume brands.

The financial impact of the Covid-19 pandemic, which has seen the unemployment rate rising above 30% in SA, has consumers either forgoing vehicle purchases or looking to buy down from new to used vehicles, says TransUnion.

“TransUnion’s ongoing Financial Hardship research shows that consumers expect to be just over R7,000 short on their budgets every month, on average. That’s more than the cost of ownership of an entry-level car. This might keep a lot of people out of the market for even longer,” says Kriben Reddy, head of Auto Information Solutions for TransUnion.

The VPI report shows the used-to-new vehicle ratio has increased post-lockdown, from an average of 2.16 in 2019 to 2.31 in Q2 2020. This means that for every new vehicle financed, 2.31 used vehicles are financed.

Average used-car prices have increased at a lower rate than new cars, with pre-owned vehicle prices rising 3.1% in Q2 2020 compared to 1% in the same period last year.

The percentage of cars (new and used) being financed has seen a movement towards vehicles under R200,000 in Q2, a trend that TransUnion expects to continue through 2020 as sentiment around the market continues to deteriorate.

The report shows that 33% of used vehicles financed are under two years old, with demo models making up 6% of used financed deals.

The percentage of cars (new and used) being financed has seen a movement towards vehicles under R200,000. Picture: DENIS DROPPA
The percentage of cars (new and used) being financed has seen a movement towards vehicles under R200,000. Picture: DENIS DROPPA

New-car price hikes were driven by increased CO2 emissions taxes introduced in April, and significant exchange rate deterioration. In the first half of the year the rand dropped from R14 to R18.30 against the dollar (-23.5%), from R18.50 to R22.50 (-18%) against the pound, and from R15.70 to R20 (-22%) against the euro.

The local currency has since recovered to R16.75 against the dollar but still remains at the same levels against the pound and euro (as at July 31).

A number of motor companies raised their car prices after the Covid-19 lockdown which saw 71% fewer new and used cars financed compared to the same period in 2019, losses which the industry hasn’t recouped after reopening for business.

The local motor industry was shut down during April, was at minimal capacity in May and only resumed full operation in June, and local new-car sales are expected to decline by about 25% this year.

Price increases have been partly offset by reduced prime interest rates that assist affordability. Last month the Reserve Bank cut the repo rate to.3.5%, the lowest since 1998.

However, some vehicle importers, including Hyundai and Suzuki, expect double digit price increases over the coming months that could outweigh the reduced interest rates.

As vehicle pricing continues to increase while consumers come under increased financial strain, local car dealers are set for a challenging second half in 2020, says Reddy.

“The focus for the industry now needs to shift to resilience, recovery and creating a strategy to deal with new consumer behaviour. By using learnings from the previous global recession in 2007-2009, when it took 24 months for the car market to recover, the industry can create robustness and understanding of the ‘new’ market more quickly, accelerating its recovery,” said Reddy.

 

Why cars are so expensive in SA

Many people look at the rand pricing of their vehicle in SA and compare it to the exchange rate converted price in countries like the US, Australia or UK, and find local cars more expensive.

The reason for this is that various taxes account for a much higher proportion of the purchase price of vehicles compared to markets such as Europe, the US and China.

Combined taxes account for about 42% of the purchase price of vehicles in SA with an average price of between R200,000 and R900,000, made up as follows:

General excise: Any car imported to SA, unless it comes from Europe, will have a 25% flat duty. Cars built in Europe have an 18% duty.

Sub 1l cars attract no import duties but there are very few of them in SA.

Ad valorem. This is a scaled duty that is ramped up the bigger and more expensive the vehicle is. On a typical A segment car like a Kia Picanto there’s a standard 5% ad valorem. The ad valorem is 8% on a larger hatch like a Ford Fiesta and 14% on a midsized family SUV like a Honda CRV.

CO2 tax. Every car that emits more than 95 grams of carbon dioxide per kilometre (g/km) is charged R120 (plus VAT) per gram over the threshold. This can add thousands of rands to the price, on an escalating scale which more severly affects larger cars that use more fuel (and therefore emit more CO2).

Double cab bakkies attract a R160 (plus VAT) CO2 tax above a 175g/km threshold.

VAT. The standard 15% value-added tax on consumer products.

Export credits. Any company that builds vehicles in SA and exports them gets offset credits, allowing them to import other vehicles at a lower rate.

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