New-car prices hiked 9.6% in fourth quarter of 2020

New-vehicle prices in SA soared 9.6% in the fourth quarter of 2020, well above inflation in a market already severely constrained by the financial effects of the Covid-19 pandemic.

This is the finding of TransUnion in its latest SA vehicle pricing index (VPI), which shows vehicle prices rose above the inflation rate for the third successive quarter in quarter four of 2020 at a time when consumers were financially constrained and many car dealers battled to stay in business.

The price hikes, combined with the effects of the pandemic, saw new-vehicle sales in SA decline a huge 29.1% to 380,449 units in 2020, compared to 536,612 sales in 2019.

Kriben Reddy, vice-president of automotive information solutions for TransUnion Africa, warns there could be further car price increases in 2021.

“The positive indicators of lower petrol prices, interest rates and inflation are not enough to move consumers into new-vehicle purchases at this stage, with consumer confidence low as a result of the pandemic and ongoing unemployment rate concerns, negative economic growth rates and pressure on disposable income all having an impact,” said Reddy.

The 9.6% hike in new-car prices in the last quarter of 2020 was a steep rise over the 2.9% increase in the last quarter of 2019. Used-vehicle prices rose 2.9% from 1.2% over the same period.

New-car prices were raised in response to a weakened rand in the early part of 2020, which saw the local currency drop from R14 to R18.30 against the dollar, from R18.50 to R22.50 against the pound, and from R15.70 to R20 against the euro.

For car customers buying on finance deals, more expensive cars were partly offset by interest rates declining to their lowest level in recent history, but there are still fewer people able to afford vehicles even at the present 3.5% repo rate. New cars bought on finance deals decreased a steep 9% in the fourth quarter of 2020 compared to the same period in 2019, with used-vehicle finance deals down 6.2%.

The rand has recovered to R14.60 against the dollar, R20.24 against the pound, and R17.75 against the euro, which may ward off further hikes in the short term if not bring price reductions. Historically, the motor industry has not dropped prices in response to a strengthened local currency.

TransUnion said that in the quarter under review, 2.31 used vehicles were financed for every new vehicle, a ratio that has remained largely consistent.

The make-up of used-vehicle sales shows that 35% of cars financed are less than two years old, with demo models making up 6% of used financed deals, which indicates an ongoing preference for older vehicles while pressure on disposable income remains.

In terms of the price range of new and used vehicles being financed, there was a clear movement out of the sub-R200,000 bracket towards vehicles in the R200,000-R300,000 category. This reflects that as inflation drives new car prices up, there is a greater demand for used vehicles, which drives used-vehicle prices up as well, said Reddy.

In August 2020, TransUnion’s ongoing financial hardship research showed that consumers expect to be just more than R7,000 short on their budgets every month — more than the cost of ownership of an entry-level car.

A drop of 18% in the new-car market in January, compared to January 2020, indicates that the economic squeeze continues for vehicle buyers in SA.

droppad@arena.africa