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Car buyers looking for affordability and fuel-efficiency

Some are even turning green.

PRETORIA – In the third consecutive year of growth in sales for new vehicles in South Africa, it is clear that consumers are moving towards more affordable vehicles – based on price and on long-term savings through fuel consumption.

Sydney Soundy, head of vehicle and asset finance at Standard Bank, commented on the latest vehicles sales data for December 2012, stating that a shift towards affordable vehicles is evident based on sales volumes in the different price categories.

“There are competitively priced, high specification and quality vehicles available to the buyer in different categories… and relatively high fuel prices should also reinforce the growing trend in favour of more fuel efficient vehicles,” he said.

An analysis of the sales data for 2012 up to November by Standard Bank showed that the year-on-year growth in the sales of hybrid petrol engines has been much higher than that of petrol engine vehicles in the passenger car segment. Diesel engine passenger car sales are also increasing at a faster pace than petrol engine cars (11.5%). Soundy told Moneyweb that the sales growth for hybrid vehicles was 23.6% compared with petrol engine cars at 7.9%. The growth in hybrid sales is, however, off a very low base with an increase from 570 in 2010 to only 700 units in the first 11 months of 2012. The number of hybrid models available has grown in South Africa to currently more than ten, still far less than what is available in developed markets. These cars also come with a price premium.

Soundy argues that the faster growth tempo for hybrids and fuel efficient cars can be ascribed to a combination of people becoming more environmentally conscious, but also simply because they feel the pinch of higher fuel prices and other costs and want affordability.

“Low entry-level, and fuel efficient vehicles remain popular particularly resulting from the increased running cost of vehicles,” Soundy said. Inland petrol prices have risen by 39.98% since January 2011 (60.78% since 2008) and inland diesel prices have gone up 45.27% in the same time (57.03% since 2008).

Vehicle prices, sales

In a statement released with the December sales data, the National Association of Automobile Manufacturers of South Africa (Naamsa) uses a weighted average estimated increase of about 3% in new vehicle prices. This is lower than the November consumer price inflation rate from Statistics South Africa data of 5.6%. It basically means that in real terms cars were actually cheaper as vehicle inflation is below official inflation, although many people have argued that the official inflation rate does not reflect their personal experience.

Soundy said that the rand exchange rate is already under pressure and that he expects it will stay that way for the first part of the year. He argues that it will have an impact on vehicle affordability going forward. Despite this expectation of higher vehicle price inflation Soundy still predicts that the market will grow at 6% this year. Naamsa is a bit more bullish, expecting growth in sales at 7.3%.

Some manufacturers are not as optimistic. Mike Glendinning, Volkswagen Group South Africa sales and marketing director, said the 2013 passenger car market is likely to grow by only around 3%.

“However, the trading conditions will be tougher due to economic growth restraints including continued pressure on household income, anticipated higher levels of pricing due to the deteriorating exchange rate and intense competition especially in the A0 segment which is the largest segment in the passenger car market,” added Glendinning.

Soundy indicated that other manufacturers are even predicting that growth in sales will be flat, and as such might try to boost sales through better deals and incentives on some models.

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