With the substantial weakness in the currency and the pressure of household debt, the latest Vehicle Pricing Index (VPI) report released by TransUnion reveals that new vehicle price inflation in South Africa continued to slow in the fourth quarter of 2015, as economic pressure weighed heavily on the pockets of both consumers and businesses.
The vehicle financial registration data analysed by TransUnion shows the ratio of new to used vehicles financed has marginally reduced from 1.76 (that is one new vehicle to every 1.76 used vehicles financed) to 1.74 on a year-on-year basis.
Data from WesBank, the market leader in vehicle and asset finance, also shows that demand for used cars is growing faster than demand for new cars. Finance application volumes for new vehicles grew six per cent, in 2015. Used vehicle finance applications grew eight per cent during the same period. During 2015 used car finance applications outnumbered new car applications two-to-one.
While the overall CPI increased from 4.37% in Q3 to 4.6% in Q4 of 2015, new car inflation softened from 6.58% in Q3 to 6.18% in Q4; reducing from 7.18% in Q4 2014 to 6.18% in Q4 2015. Used car price inflation increased marginally during the period from 1.44% in Q3 to 1.47% in Q4.
“Macro-economic factors contributed to a fall in domestic vehicle sales of 4.1% during 2015. New vehicles are showing a further slowdown in price increases in Q4, a direct result of struggling sales volumes of new vehicles and a stressed economy,” says Derick de Vries, CEO, Auto Information Solutions at TransUnion.
De Vries says that although new vehicle sales are under pressure resulting in an oversupply of stock in the market, sales volumes on new vehicles financed in Q4 2015 is on par with Q4 2014. However, manufacturers will be under more pressure to pass on price increases to consumers in 2016 due to the substantial weakness in the currency.” The slowing down of marketing incentives from manufacturers in 2016 combined with a weakening Rand will continue to strain sales volumes and lead to difficulty in the market.
Rudolf Mahoney, Head of Brand and Communications at WesBank, says that manufacturers are in a precarious position. “New vehicle prices need to be adjusted for the depreciating Rand and marketing incentives are required to maintain sales levels, but manufacturers can’t price themselves out of the market”.
De Vries adds that with continued pressure on consumer’s disposable income, the 2.25% increase in interest rates over the last 24 months and economic uncertainty, consumers are and will continue to hold back on replacing their vehicles. “TransUnion notes that consumers are settling for a used vehicle which offers the same luxury of a new vehicle. Consumers are still spoiled for choice however, affordability is playing a bigger role in their buying decisions.”
Mahoney points out that many consumers rely on long-term finance agreements to lower their instalments, but rely on trade-in assistance programmes to trade their vehicles in sooner. “Average contract periods are at the 69-month mark, but consumers tend to trade in at roughly 37 months into their contracts, nine months before the breakeven point is reached. If manufacturers cut back on marketing programmes then these consumers will have to hold onto their vehicles, which keeps them out of the market for longer.”
De Vries concludes that the struggling Rand and lower consumer confidence could see a decline of up to 8% in new vehicle sales during 2016. “Dealers are feeling the impact of the currency weakness and will have to ensure that they increase revenue in other areas of their business to support sales revenue whilst containing costs within their business. Furthermore, manufacturers will be faced with depressed sales volumes together with further currency weaknesses, which will result in increased prices into 2016.
Alan Straton
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