New vehicle prices rise sharply above inflation despite sales slump

Depreciation of the rand blamed.
Used vehicle prices have also increased. Image: Patrick T Fallon, Bloomberg

New vehicle price inflation rose sharply to 6.5% in the second quarter from 3.1% in the same quarter in 2019 despite new vehicle sales nosediving because of the Covid-19 lockdown and its impact on the financial health of households.

Read: SA car sales at record low

TransUnion Auto Information Solutions said on Wednesday this is the first time since the second quarter of 2017 that new vehicle prices rose at a rate above inflation.

Statistics South Africa reported on Wednesday that headline consumer inflation edged up marginally to 2.2% in June from 2.1% in May.

Kriben Reddy, head of Auto Information Solutions for TransUnion, said the bulk of the new vehicles that are sold in South Africa are imported, which means the biggest driver of the price increase is the strength of the rand.

Reddy said a similar situation occurred in 2007-2009 when the exchange rate of the rand was volatile, resulting in above-inflation price increases. “That is exactly what is coming through now,” he said.

Cycles

Reddy added that a lot of the dealer groups or original equipment manufacturers (OEMs) take forward cover when they import or are planning their stock levels, but some of those cycles will have come to an end.

As they restock now, this is when the price increases come through, he said.

Econometrix chief economist Azar Jammine said TransUnion’s new vehicle price inflation figures tie in with the Consumer Price Index (CPI) figures for June released on Wednesday, which showed quite a sharp increase in new vehicle prices.

Jammine echoed Reddy’s view of the cause of the price increases.

He said the rand has depreciated sharply this year, although it rallied somewhat this month, but prior to July was trading “somewhere north of R18 to the US dollar and at one point above R20 to the euro and above R23 to the pound”.

“So vehicle input costs have soared. Businesses can take forward cover and insulate themselves from the impact of a currency depreciation for a time but when those forward exchange rate contracts mature, then those companies are faced with a significant increase in the cost of their inputs.

Monopolistic

“You might say there is no demand but this is what happens where you have a fairly monopolistic environment where businesses will still pass on those cost increases to consumers even if it means lower sales at the end of the day,” he said.

TransUnion reported on Wednesday that used vehicle prices had also increased to 3.1% in the second quarter of 2020 from 1% in the same quarter in 2019.

Used vehicle prices have increased despite vehicle rental companies indicating that they will be embarking on significant defleeting programmes, resulting in increased availability and supply of used vehicles in the market.

These companies are taking this action because of the massive impact of the Covid-19 regulations on the travel and tourism market, which has significantly dented the demand for rental vehicles.

Reddy attributes the increase in used vehicle price inflation to shifting consumer buying patterns from new to used vehicles and the increased availability of good quality, clean and well maintained used stock of not very aged vehicles, particularly from car rental companies.

He said the financial impact of the pandemic, which has seen the unemployment rate rising above 30% in South Africa, has resulted in consumers either forgoing vehicle purchases or looking to buy down from new to used vehicles.

Read: Troubling car instalments when finances bite

TransUnion reported that the used-to-new vehicle ratio has been trending upwards post-lockdown from an average of 2.16 used vehicles for every new vehicle sold in 2019 to 2.31 used vehicles for every new vehicle sold in the second quarter of 2020.

Reddy said the make-up of used vehicle sales shows that 33% of those financed are under two years old, with demo models making up 6% of used financed deals.

“This indicates consumers are opting for older vehicles as pressure on disposable income increases,” he said.

Jasmine said the rate of increase in used vehicle prices is still quite low and suspects that new and used vehicle supply and demand is not affecting pricing and the rate of increase in prices.

Don’t expect big discounts

He doubts car rental companies will be offloading vehicles from their fleets at hugely discounted rates “and that again is due to the monopolistic nature of the South African economy”.

“Typically in a free market that would happen and you would drop your prices to the point where customers start buying but that is not happening in South Africa.

“People are using their vehicles less and there also might be an increase in the supply of used vehicles [from individuals] to generate a bit of cash for consumers who might be in dire straits,” he said.

“But even the used vehicle market has become concentrated in the hands of WeBuyCars and a few other companies.”

TransUnion said the signs of consumers’ purchasing power growing marginally throughout 2019 has been pushed back post-lockdown and expects this trend to continue through 2020 as sentiment around the market continues to deteriorate.

It said there has been a clear movement towards new and used cars priced at under R200 000 in finance agreements concluded in the second quarter of 2020.

Reddy said it took 24 months for the car market to recover after the previous global recession in 2007-2009.

“What is critical is how long it will take consumers to recover from the economic effects of the lockdown. The longer the constraints of Covid-19 continue, the greater the impact on the industry and the broader economy,” he said.

Reddy said TransUnion’s ongoing Financial Hardship research shows that consumers on average expect to be just over R7 000 short on their budgets every month, which is 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,” he said.

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In 5 months I have done around 1500 km. Hardly reason to buy a new car.

Target the ANC thieves. They have lots of covid money to spend and get rid off.

That’s the market for now. The rest will take a VERY long time to recover if ever.

I have always been wary of second hand car sales persons, but now wary of new car sales persons too.

Lavish show rooms, sales people who are clueless about the product, standing waiting while they finish their computer game, on the road expense ripoffs……. and the price goes up????

You guys are going to sweat, just wait.

Correction: businesses will TRY to pass on the increases to the consumer, but except for cadres who’ve scored from dodgy deals, and public alleged servants, they will find no takers among honest people in the private sector. People will simply start buying used cars.

The number of brand new cars out there astounds me every day. I’m sure most of these folks are paying more monthly for their car than their house. Once you get into the 3 year trade-in habit it is very difficult to get out.

People cut their throats to keep up with the Jones.

I myself drive a VW UP! and use a gold card which costs around 5x less than what a black card would, kudos to me. But, if I were to lose my job today, I would be poor and broke within six months. Granted my peer who drives a Polo GTI and took the black card will be poor and broke within 2 months, safe to say we will both end up in the same ditch. I guess beyond keeping up with the Joneses, people are just ridding the wave until it gets to shore. And everyday when I check the values of my banked savings, property and share portfolio I envy those guys more. Maybe I too need to embrace the debt lifestyle and lease everything.

What is the basis of your surety?

A new entry level 3 series costs R 661k. At 10% over 6 years that’s a payment of just under R 14 000pm. With a house you a normally sharing rent/bond with a partner etc.

Why does the same car build in South Africa sell for 30% less in Australia?

I too wanna know the answer.

Taxes.

Glass palaces and BEE.

on the face of it….Tariffs.
Former Minister Rob Davies… did set out to create a protectionist economy. Higher tariffs to protect local industry. So cheap imports become expensive. Plenty cheap cars available in Durban (second hand cars from Japan).

but on another level … employment reasons. Ensuring that the wages for employees in this sector are higher than average and are protected in a way

Yanni. I have answered you before. The reason no one can tell you why it is 30% more is because it is not.

Maybe a bit outdated exchange rate wise, but from my previous response on moneyweb to you

Some more examples @ exchange rate 19/2/2020 and all for sydney post code
FORD (these are made here as far as I know)
Entry Level Ranger Double Cab: ZAR362k or AUD36, AUS AUD44
Raptor: ZAR 837k or AUD83.7, AUS AUD85.5

BMW X3 (made here)
2.0 base price: SA AUD69k AUS AUD 64

Volkswagen POLO (not made here – vivo is as far as I understand)
BAse Polo: 25k vs 19k (your 30 % example)
Top of Range: 31.5k vs 27k (17%)
Polo GTI: 40 vs 35 (14%)

So I guess if you want to drive the most sold car in SA, you will pay that 30% premium. But there is other options, some even cheapers as in AUS – Ah, that choice thing again

There are s few reasons:
– Different standard options on vehicles in different countries

– Motorplan cost is included in most Vehicle Brands price in SA. Not so in other countries

– Import duty on cars into SA does have a role to play (import duty is massive: between 40% and 56%). Duty plays a part in the MIDP scheme that SA uses to incentivise car brands to manufacture in SA – as manufacturers use their export credits to offset import duty. However that does mean that competitors that do not have any manufacturing in SA have a big duty problem.

I have noted the same. What amazed me is that they are mainly young people who are driving those executive cars. Probably money laundering. I have seen countless time people paying cash huge sums at dealership. This is all undeclared money to the taxman. That is why there is no hope in South Africa.

Cheap Credit = Expensive Cars

They always catch you on the trade-in and finance houses are offering longer and longer payment terms.

Can’t be true. The treasury has assured us that CPI has been reigned in and consumers have nothing to fear.

Economists tell us interest rate cuts are good for the economy… even though rand depreciates and imported inflation rises. Banks on the other hand won’t loan money cheaper so why bother with rate cuts?

Why does the same new car build in South Africa sell for 30% less in Australia than it does in South Africa? Is it profiteering?

A modern petrol car(a car build in the last 30 years) engine can last
480 000 km as long as you yourself or someone services the car when it needs to be serviced and you drive the car at normal speeds i.e. you don’t drive at high speeds.

It’s a myth that digital odometers on new modern cars can’t be rolled back. They can be rolled back by removing the vehicles circuit board to change the odometer reading or by using rollback equipment that plugs right into the vehicles electronic system.

Why does the same new car build in South Africa sell for 30% in Australia than it does in South Africa?

A car is a liability not an asset. Once you drive a new car off the show room floor it has already lost about half its value.

A modern petrol car( a car build in the last 30 years) can last 480 000km as long as you or someone else services it when it meant to be service and you drive it slowly.

I still drive my 200 petrol Mercedes serie 3 from 1981. Built in EL. Nothing wrong with it. About 8l-9l/ 100 km. Only third party insurance at 60 rand a month. Maintenance: easy: oil change and filters. Do it myself.
And when I stop at the petrol station, everyone wants to buy my car!

Government officials being their number 1 client.

JHB Metros are currently driving brand new 3 series.

Not even a 320 but 330 model – was shocked when I saw that

The car dealerships have heard about the R70 Billion IMF loan.. the cadres need new landrovers.

The law of supply and demand applies to everything. Just how is a new car worth lots more if there are no sales. I think car manufacturers will go out of business with their unorthodox thinking. Years ago the price of locally produced vegetables and dairy products dramatically rose and the rise in price was attributed to the Rand/Dollar exchange rate. The reasoning was ludicrous. So, if there are no car buyers, it is as ludicrous to import higher priced vehicles that cannot be sold.

The reason economists say it’s the rand dollar exchange is down to the fact that the country importering the same products are willing to pay a premium and therefore the consumer back in SA has to compete with this.

If you owned a farm and the carrots sell locally for R10 per KG but you could export them at R20, they you would focus on exporting and not care about the local pricing. This plays quite a large role when the rand fluctuates.

Stupid South African consumers and politicians forget that they are in constant competition with other countries and governments failure to stimulate the economy will lead to an even poorer consumer.

Stagnation is Regression

because new cars are imported. Those we make locally are not priced for local consumption but a price in USD or EUR since those are the shareholders.

I think that ALL SOUTH AFRICANS SHOULD NOT BUY A SINGLE NEWCAR FOR ONE MONTH. Then you will see price dropping. It should be possible.

Cars doesn’t fascinate me.just wanna get from a to b as cheap as possible with reliability.

Myself, God blessed me where it counts

Best way to fix them and to save a lot of money is to buy a secondhand car. Simple.

I have never bought a new car, cannot get in and as i cross the showroom floor I lose R100k, gone up in smoke.

Our household has two cars, bought new in 2007 and 2009 respectively, each with just over 100 000 on the clock. Both are serviced by the respective agent and I expect them to easily last another 20 years if necessary. In my opinion, that’s the way to do it.

I’ve been attracted to prime -5% deals, only to see that the monthly installments re over R12000 over 96 months.

Besides for the captive tax payer, who in their right mind pay those prices?

Dear South Africans. First you MUST change your behavior regarding SAVING. Forget about posh 4×4, about huge properties, about wasting time in sports like rugby, crickets, football. Banks are ripping you off left, right and center by providing you with huge loans at high interest rates you pay back over 20 years. It means that for at least 8 years of your life, you ONLY work for the banks . 8 years completely wasted. Money you could have instead save. Live simply. Avoid expensive restaurants, take aways. Stop spending your money on endless shopping. Save, save , save until you die. In our new world, you have no over choice. Avoid debt at all cost. Deprive you for many unnecessary things. More disasters are looming in the near future. And remember that governments, all over the world, will taxe you more and more and more. Common people have always been exploited. Look at how much power government is using in crisis time to over- rule any democratic process and become a dictatorship.

Simple economics tells you how this ends. Do you know how many taxes are in a car purchase? Import duty,Excise, carbon emission, VAT, sticker, tire, fuel levy did I leave one out??? Hmmmmmmmmmmmm

Higher prices due to exchange rates? My ass! Only the Brittish pound, Euro, Swiss frank, Aussie and NZ dollars have increased in value against the Rand. Are we importing from these countries? The US dollar and other currencies have mainly dropped against the Rand.

The economic principles of supply and demand definitely doesn’t count when it comes to the car industry.

I think people should consider moving to motor cycles rather. You have less insulation while driving on the road, but there is a lot more freedom to maneuver through congested traffic and they are more fuel efficient.

I wait for the day the local Motoring magazines (& websites) place a nice yellow TUK-TUK on their front page for a feature test.

With heading: “SA’s most ubiquitous & trusted vehicle. The ATUL. Tested.”

(….not out of love, but that we will not have much of a choice anymore)

End of comments.

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