DAVID FURLONGER: How long can car sales defy gravity?

Can you really afford to buy that new car you’ve set your heart on? Alternatively, can you afford not to?

Unless you are one of the lucky people able to pay cash, acquisition of a car — be it new or used — may put you in debt for up to seven years, depending on the length of your finance agreement. For some consumers, it’s more than they can manage. Banks confirm that shrinking disposable income, rising interest rates and general economic misery are forcing more customers to seek credit relief after falling behind with repayments.

With interest rates at their highest level in years and forecast to increase further in early 2023, the situation is likely to get worse before it gets better. It’s not a crisis, nor do banks expect it to become so. Indeed, the current 10.5% prime rate — the minimum rate at which banks generally lend to their best customers — is well below half of its August 1998 peak of 25.5%.

Even so, consumers need to be aware of the debt responsibility they are taking on when they sign on the credit dotted line. It’s not just the four wheels and an engine. It’s also the extras that make up the total cost of vehicle ownership.

That cost package has risen sharply in recent times, says WesBank marketing head Lebogang Gaoaketse. In 2021, the average monthly bill for a typical car — including credit instalments, fuel, insurance and running costs — was R7,715.94. By November 2022, this had risen to R10,165.05. That’s a 32% hike. To give some longer-term perspective, it’s 33% more than in 2018 — showing that the real cost damage has come in the past 12 months. Interest rates have risen seven times since November 2021.

The “typical” car used by WesBank for this exercise is an entry-level vehicle that costs about R250,000 and travels 2,500km monthly.

Of course, if you are one of the many people who have delayed replacing your car in the past couple of years — and if you had the nous to choose a fixed interest rate rather than a linked one that one that goes up and down with prime (these days, simply up and up) — some of these costs may currently be reduced. But, as Gaoaketse observes, the older the vehicle, the higher usually the maintenance costs.

For those who are tired of waiting and are about to return to the market, there’s a little shock in store. Prices rises are accelerating. It may not always seem like it, but motor companies try their best to absorb unforeseen costs and keep their vehicles affordable. Only a few weeks ago, Nissan Africa head Mike Whitfield predicted that price increases would remain below the inflation rate.

That prediction is coming under pressure. Automotive data company TransUnion, in its latest vehicle price index, reports that new-vehicle prices increased 6.8% year on year in the third quarter of 2022. That was just below the 7% consumer price index (CPI) rise over the same period but sharply up on the 3.8% year-on-year increase in the second quarter.

The weakening rand has something to answer for. Most new cars sold in South Africa are imported, the majority from India, so exchange rates play a big role in pricing. Fortunately, this is partially balanced out by the fact that South Africa exports nearly two-thirds of its home-made cars and bakkies.

For used-car buyers, the TransUnion picture is even worse: a 9% third-quarter rise. That means used-vehicle price increases have outstripped CPI every quarter in 2022. TransUnion calls the latest rise “dramatic”, blaming “scarcity in the supply of quality stock”. In other words, by holding on longer to their vehicles, individuals and companies are starving the used market.

It’s no surprise, therefore, that the share of new and used cars is changing. In the third quarter of 2021, 2.41 used cars were bought for every one new. Now it’s 2.1 to one.

Whatever the reason, the new-car market continues to defy gravity. Latest sales figures, released last week by Naamsa, show that, to the end of November, 2022 car sales of 334,010 were 19.6% ahead of the 279,388 at the same stage last year.

Throw in commercial vehicles, including bakkies, minibuses and trucks, and sales for the 11 months totalled 486,895, or 13.6% more than the 428,549 in 2021.

Sales every month this year have outperformed 2021. While some growth was inevitable, the scale continues to confound some. “The new-vehicle market continues to outperform expectations,” says Naamsa CEO Mikel Mabasa. National Automobile Dealers’ Association chair Mark Dommisse called the latest figures “a pleasant surprise”.

Once again, though, there’s a sense that it can’t last. Mabasa says: “GDP growth in South Africa continues to be adjusted downwards and is now expected to be at 1.1% for 2023. In view of the close correlation between new-vehicle sales and the country’s GDP growth rate, single-digit growth in new-vehicle sales can be expected for 2023.”