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A good year to buy a new set of wheels

Expect low price increases and a range of incentives.

There’s good news for those entering the new vehicle buying market this year, with price increases expected to be low and dealers offering a range of marketing incentives, from trade-in assistance to discounts on vehicles.

This is the view of Kriben Reddy, head of auto information solutions at TransUnion, which on Tuesday released its latest vehicle price index.

Mark Dommisse, chair of the National Automobile Dealers’ Association, says people in the entry level vehicle market are being offered very aggressive deals because of the mix of cars being bought and the reduction in the new vehicle market to about 536 000 units last year from about 550 000 in 2018

Read: Car sales expected to remain subdued

Dommisse says overall light commercial vehicle sales fell last month by a whopping 16.3% compared to sales in January last year, with dealer sales falling 15%.

This is “telling a tale” about consumer affordability in this segment, he says.

“That is quite scary, so I think we are going to be in for a tough ride but I do think the entry level segment in the market has a lot of volume to it and the manufacturers will all probably push volume in that direction by offering incentives like free insurance for a year and quite good bank finance deals. That is where the market uptick will probably come.”

Azar Jammine, chief economist at Econometrix, expects continued support of brands from manufacturers through marketing incentives.

He points to how “good deals” helped boost new vehicle sales in November and December last year – and how these sales fell away in January when these incentives were no longer available.

While Jammine says the new vehicle market will be under continuous pressure this year, he expects replacement demand to prevent it from collapsing. He anticipates total sales for the year to be slightly negative compared to 2019 at about -2% or -1%.

Reddy says the challenge facing this sector is that to get a customer into a new vehicle, you have to get them out of the old vehicle first.

He stresses that in many cases the very deal structures that are meant to stimulate the market, such as offering terms of up to 84 months on car finance, are having the opposite effect by taking customers out of the market for longer.

If you take a deal over 54 months, conventional wisdom is that you are going to be back in the market after 36 months – while over 84 months, you are taking that customer out of the market for another one to two years, he says.

Reddy adds that the used-to-new vehicle ratio has increased, rising from 2.03 used vehicles financed for every new vehicle in the fourth quarter of 2018 to 2.09 in the same quarter last year.

Read: New or Used? What you should consider when you buy a car

In the used vehicle market, more than 36% of vehicles are under two years old, with 6% of those being ex-demo models, he says.

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

He adds that the percentage of new and used cars being financed below R200 000, between R200 000 to R300 000 and over R300 000 has remained broadly consistent over the past seven quarters.

This means that after allowing for inflation, consumers are spending less on cars, and opting for less expensive entry level vehicles.

He says the average loan size in the fourth quarter of 2019 is similar to that of the second quarter of 2013, suggesting that consumer buying power has effectively remained flat, or fallen in real terms, for the past six years.

TransUnion’s vehicle price index shows that new vehicle price increases have remained below inflation for more than two years.

Reddy says despite this, the number of new vehicles financed in the fourth quarter of 2019, a key indicator of sales, fell by 1.6% compared to the same period a year ago while the number of used vehicles financed increased by 1.4%.

TransUnion reports that new vehicle pricing slowed to 2.9% in the fourth quarter from 3.3% in the third quarter, with used vehicle price inflation increasing to 1.2% from 1.1%.

Uncertainty not helping

Reddy says the stagnant new vehicle market reflects ongoing low consumer and business confidence, with continuing load shedding and pending decisions on South Africa’s investment rating having a clear impact on both growth prospects and market sentiment.

“In the face of these levels of uncertainty, constrained consumers are delaying vehicle purchasing decisions.

“The major issue facing the local automotive industry is the need for structural reform at a macroeconomic level.

“We need to see sustained positive economic growth to get the new car market moving, and the challenge is that in 2019 we weren’t there.

“The problem is that it is unlikely this situation will change in the short term, indicating that we may continue to battle for some years yet.” 

Reddy says vehicle exports provide a bright spot by retaining jobs and keeping production lines going.

 

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Mentioning of “84 months” vehicle finance….does such a long term exist? (thought the max is 72mnths..). It’s getting crazy.

I recalled in the 1990’s the max term was 60 months. The longer finance terms now available, is merely an indication how POORER South Africans have become, in order to afford a vehicle (new or used).

We are well on our way of paying off a ‘spade & wheelbarrow’ over 10 years….’cause these will become unaffordable luxury items the next decade! Don’t worry….it can be financed!

Btw, I’d rather take the Fiat Panda in the top-right of image 😉 I note Arnold Chatz Cars still has R71,000 discount on certain new Panda models…R139K for “Lounge” model (priced lower than some Datsun Go & Renault Kwid…which are in a lower class-segment than Panda). Even R179K for the Panda 4×4 version is extremely temping.

The ‘sweet entry level deals’ are just to hook you in and keep you indebted forever. All of these deals have balloon payments that force you to either refinance or trade in on a new model once the initial cheap (i.e interest only’) payments are made.

I have both a problem with new cars and a liking of new cars. Most people like a new car and the wonderful smell of it. You are, however, overpaying on a so-called asset that is continuously losing value, and significantly so in the first few years. To rub salt in raw wounds, you are also paying interest on the value you are busy loosing. A double whammy indeed.

Fast forward a decade or three – what monthly pension are you expecting to receive when you retire? It is all about priorities, forget about the Joneses.

1000%.
Heres the thing thu when u buy good pre-owned…. The car still has the new smell.
It seems to be more a thing amongst woman having the “want” to drive new cars as apposed to males….
Why???? Princess syndrome perhaps??

FIAT – First In All Troubles 🙂

Not according to the What Car reliability survey of 2019.

Best, most reliable, and most fun to drive cars we have owned

Those kind of survey people must be the same who chose the Porche Cayenne as car of the year some time ago. Lost touch with reality.Brainless fools. How many 10 year old FIAT cars do you see on the road compared to Toyota??

Only problem is that they depreciate pretty fast so unless you are going to hold on to the car for the life of a car it is not a good choice.

South Africans are indeed getting poorer and expect it to get worse as the exchange rate is likely to become less favourable WHEN (not IF) we get downgraded.

It’s easy to forget that pretty much everything we consume is IMPORTED, cars most of all.

When you take a weak rand and combine it with crazy import duties and other taxes imposed on cars, you get the current scenario — another industry that is being run into the ground by our useless government.

Oddly enough, here in JHB you don’t see any shortage of luxury cars so clearly there are still plenty of people out there with the cash to go large.

I suspect there is still lots of activity at the bottom end of the market, with entry-level cars and at the top end, but not much in the middle.

The vehicle finance companies tell us exactly how people afford these new cars.
– Increase in balloon payment finance deals (increase in balloon amounts and number of people opting for this kind of finance)

– Longer finance periods

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

A modern petrol car( a car build in the last 30 years) engine can last 480 000km if it serviced regularly and driven slowly.

Yip-my friend who is a rep has done 550 000 km per car in his last 2 Corollas 1.5. No problems.

The high car prices in SA is another consequence of above normal import taxes raised by cANCer to enable the government to pay the salaries of incompetent civil servants…

STAY AWAY FROM BALLOON LOANS !!!!!THE CAR WILL NOT BE WORTH THE BALLOON PAYMENT YOU WILL HAVE IN 6 (SIX) YEARS AND BY THE WAY, WHERE WILL YOU GET R 180,000 FINAL PAYMENT FROM. YOU HAVE BEEN WARNED

Expensive depreciating asset to keep up with the Jonses. Last new car I bought was in 1994, only traded it in 2014 on a demo model which I will keep until departure.

A car is not an investment, it is a money sucking parasite.

Fix what you have, or buy second hand and grind the salesperson. The secondhand car market is littered with crooks.

Is it ever a good year to buy a brand new car?
No. Never.
Buy second hand pre owned always. Let some other sucker pay the 20 % premium on the ne car for u. Plus just work the new leather seats in to comfort level for u.
Why is it so hard for south africans to be happy with buying good second hand?? Is it an ego thing??
And as apposed to just buying a cheaper brand new car…… I’d rather buy a good quality car like a Toyota for secondhand, rather than a brand new Renault, for the same price… There a reason the Renault have window heating on the back windows as well – stop yr fingers freezing in winter. When pushing it.
Most older people would have been able to retire wealthy – if they bought good pre-owned instead of brand new when they were young. But they were too full of c.. To do that.

Although vehicle prices haven’t recently increased at the same rate as has been the norm, fact is that they are the highest they have ever been. “A good year to buy a new set of wheels”? Only if the set you’ve already got can’t go any further, I suggest.

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