Prices of new vehicles increase by more than inflation, again

And could continue to rise in the coming months.
Factors like exchange rates and tax duties play a big part in new vehicle price hikes in SA. Image: Waldo Swiegers, Bloomberg

The price of new vehicles increased by more than the inflation rate for the second consecutive quarter and consumers are facing the prospects of the rate of increase rising further in coming months.

The latest TransUnion SA vehicle price index report released on Thursday revealed that new vehicle prices increased by 7.6% in the third quarter of 2020 from 3.3% in the corresponding quarter in 2019.

Source: TransUnion Vehicle Pricing Index Q3 2020 (click to enlarge)

This latest increase in new vehicle inflation follows new vehicle prices rising sharply to 6.5% in the second quarter of 2020 from 3.1% in the same quarter in 2019.

More to come?

TransUnion Africa vice president of auto information solutions Kriben Reddy said on Thursday the latest increase in new vehicle prices follows 10 quarters of vehicle price increases remaining below inflation and “could herald a cycle of further increases”.

Reddy stressed that new vehicle pricing in South Africa is not driven by demand.

“As around 70% of our vehicles are imported, factors like exchange rates and tax duties play a big part in the price hikes.

“The used car market, on the other hand, is entirely-demand driven, so the fact that we’re seeing a rise in the prices of used cars shows a clear increase in demand for second-hand vehicles,” he said.

Econometrix chief economist Azar Jammine said the driving force behind new vehicle price increases is without doubt the depreciation of the rand in the first half of the year.

‘Dramatic depreciation’

Jammine said it was a dramatic depreciation, especially in regard to the motor industry related currencies but particularly the euro.

He said earlier this year the rand was at around R15 to R16 to the euro but it has been as high as R21, and even with the rand as strong as it is now, it is at around R19.50 to the euro.

“So you are looking at a depreciation of up to 20 to 25% of the rand against the automotive exchange rate, the countries from which we import a lot of components. Some of that is feeding through now.

“New car inflation could have been a lot higher still, given the extent of the currency depreciation and that is also a function of the fact that demand is so much lower,” he said.

New vehicle prices have been increasing despite the decline in sales caused by the impact of the Covid-19 lockdown and the impact the lockdown has had on the financial health of households.

Signs of sector resilience in Q3

However, Reddy said the South African car market showed signs of resilience in the third quarter of 2020, bouncing back from an all-time low in the second quarter to record month-on-month increases in the number of new and used cars financed in both August and September.

He said despite total financial agreement volumes in the passenger market showing an expected 21% year-on-year decline from the third quarter in 2019, the market overcame rising vehicle prices, difficult trading conditions and uncertainty to record a 35% month-on-month increase in August and 45% in September, albeit off a low base.

“This suggests that while challenging times still lie ahead, the industry could be on the road to recovering from the total shutdown caused by the Covid-19 pandemic.

“Overall, the global automotive industry has had another challenging quarter. In South Africa, it has been a quarter of gradual recovery in terms of business and consumer confidence, new vehicle sales, finance applications and overall demand.

“While the automotive industry is not yet out of the woods, the small gains made towards the end of the quarter off the back of record lows in Q2 is a real positive for the industry,” he said.

TransUnion reported that the rate of increase in used vehicle prices rose to 2.3% in the third quarter of 2020 from 1.1% in the same quarter in 2019.

It also reported a marginal increase in the used-to-new vehicle ratio from 2.31 used vehicles financed for every new vehicle finance in the third quarter of 2019 to 2.35 used vehicles for every new vehicle financed in the third quarter of 2020.

Previously owned vehicles

Jammine said used car inflation is probably much lower than new car inflation because of the glut of used cars in the market following the significant defleeting by car rental companies, the fact people are driving less now than before and, from an affordability perspective, a lot small business owners have had to shut down their operations and no longer need a permanent car.

Reddy said the make-up of used vehicle sales shows that 36% of vehicles 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,” Reddy said.

TransUnion reported that the percentage of both new and used cars being financed below R200 000, R200 000 to R300 000 and over R300 000 has moved back towards vehicles priced at over R300 000 in the third quarter of 2020.

Reddy said this is the highest level since TransUnion started tracking this information in 2011.

Bakkie-buying on the up?

“While this could be seen as a positive sign, it is also indicative of segment movements through higher vehicle pricing, premium brand used vehicles financed and a shift of consumers [towards] purchasing bakkies,” he said.

Reddy said the fact that interest rates have dropped to an all-time low could assist some consumers from an affordability perspective although lenders facing high delinquency rates will need to manage key metrics to minimise their risk by amending thresholds of loan to value ratios, loan terms and balloon payments.

“Consumers and dealers need to be cognisant of the vehicles they purchase or stock, due to defleeting and possible vehicle repossessions as a result of defaults on repayment agreements in the upcoming months,” he said.

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Car are just expensive here. The very same car that is made here and exported to the USA is cheaper than here. It would be much cheaper to buy the very same SA made car if was not for the high penalty tax on imported cars.

… But the DTi created this situation.

“As around 70% of our vehicles are imported, factors like exchange rates and tax duties play a big part in the price hikes.”

70%? That can’t be right, surely? Aren’t the majority of cars sold in this country still VW and Toyotas which are locally produced?

If it is as high as 70%, then what local industry is actually being protected by high tariffs – remove them then.

I think VW only manufactures the Polo, & Polo Vivo in SA. Toyota makes the Hilux, Fortuner and old Quantum here. Toyota has stopped making Corollas in SA. BMW stopped making thew 3 series in SA. It produces the X3 locally. Ford produces the Ranger and Everest in SA. Nissan builds the NP200 here and Mahindra builds the Pikup bakkie here.

Agree. Interestingly, most Saffas are unaware their beloved NISSAN NP200 is nothing more than a Romanian DACIA LOGAN Pick-up with proven Renault engine (part of alliance). The Nissan badge is affixed by using strong Romanian glue.

sorry, and Merc builds the C class here.

Isn’t Hyundai manufactured in Botswana? These popular cars will be a slice of the 70%

I bought used for the first time in August after buying 4 new cars previously. No regrets!

Don’t fall into the SUV/crossover trap either. The manufacturers are making larger margins with this trend.

We have a growing grey import market for cars. It will keep on growing as longs as the local operations of the major car brands continue to price themselves out of the market.

..exactly I said in a previous recent article: SUV’s are nothing much different than hatchback principle…with raised & enlarged body / raised suspension and with/without AWD.

ALL vehicles where you can open the “5th door” at the rear & tumble the rear seats forward to increase load space….are HATCHBACKS in principle.

The trick is marketing, design & accounting depts of manufactures smiling all the way, to see how much they can charge for Fortuner hatchbacks, BMW X-series hatchback, and Merc’s GL-series hatchbacks. Nothing wrong with with these hatchbacks….they’re all VERY PRACTICAL…better than Sedans.

The ‘SUV’ is the best kept secret in the car design industry…causing motorist to accept to to pay more (as if we’re all brainwashed).

Never been stupid enough to buy a new car.

I’ll be buying my next car in New Zealand thank you very much.

A car is just a object to get you from a to b.

Nope, it is a status symbol. You show to others how rich you are by the amount of money you can burn on a car every month.

Agreed.

And here in Africa we are behind the curve so many years to come.

There are pockets of our society that have a more European approach to this.

20 km/liter is what becomes important and no wonder the same small vehicles are the status symbol in Europe. It’s seen as SMART.

And for buying new? Well?? Small things amuses… ????

Miss my old cheap, fuel efficient opel monza 1.6 gls

Yup, as Mmmm said “we’re behind the curve”.

For example, most Europeans in cities view a car as a complete nuisance (parking availability issues, cost of parking almost same as car in some cities), since they have a functioning public transport system.

And maxi-chooters are the way to go private transport wise, despite been a rainy region. Those European communiting scooter community is tougher than us Saffas that prefer to sit in traffic in our double cabs, SUV’s etc.

In Amsterdam is rains on most days. Common transport is bicycle. Saffas mostly ride their (over-priced) bicycles on the weekend…we’re not that tough a nation 😉

Unfortunately we dont have a safe train/bus system like the UK.So we need cars.

Not so safe anymore, with covid-19 and all – Its wonderful if you are a tourist but I use to hate the daily commute when I was working in London.

End of comments.

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