Used-car inflation continues to surge ahead of new cars

The prices of used vehicles in SA continued to surge in the third quarter of the year, the 14th successive quarter of growth, but the new car market is showing signs of normalising as supply levels stabilise.

So says TransUnion, which notes that the latter may not be enough to ward off a possible slowdown in car sales as consumers look to cut discretionary spend in the face of inflationary pressures and rising interest rates.

TransUnion’s latest vehicle pricing index (VPI) shows the price inflation of new vehicles rose sharply year on year from 3.8% in the third quarter of 2021 to 6.8% in the third quarter of 2022, but the used-vehicle index rose even more, from 5.9% to 9%, in the same period — higher than SA’s 7.6% overall inflation rate.

Motorists are getting higher prices for vehicles they are selling or trading in than before.

The index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles from 15 top brands.

The number of financial agreements in the passenger vehicle market continued to climb back towards prepandemic levels, increasing 8% year on year. New-vehicle volumes soared 21% in this period, compared with a 3% rise in usedvehicle volumes.

Kriben Reddy, vice-president of auto information solutions at TransUnion Africa, says this was partly due to consumers reentering the market as new vehicles became more readily available after supply chain issues.

“The challenge is now that dealers have largely solved supply issues, there’s going to be an increasing demand problem as the effects of inflation and interest rates start to bite into consumer wallets. A moderation in transport inflation, thanks to fuel price decreases in August and September, offset a build-up in food and clothing price pressures, but we expect price inflation to remain at elevated levels.”

SPENDING CUTS

According to TransUnion’s latest Consumer Pulse study, more than half of SA consumers have cut back on their spending, and expect to cut discretionary

spend even further in the coming months. One consequence of this is that consumers will hold on to their cars for longer, and the industry will have to get creative to get them back into the market, said Reddy.

The ratio of used to new vehicles sold shifted significantly in the past quarter. A year ago, 2.41 used vehicles were sold for every new vehicle; in the third quarter of 2022 this declined to 2.1. In the used-vehicle market, 25% of cars sold were less than two years old and this continues to decrease as the supply of quality used vehicles remains under pressure. Demo models made up 4% of used financed deals, which indicates consumers continue to opt for older vehicles as quality supply diminishes and pressure on disposable income increases.

Consumer buying patterns showed that more than one in three (34%) of new and used financed vehicles are hatchbacks, while more than one in five (21%) are SUVs. Sedans have retained market share mainly in the used-vehicle market.

The price points of cars (new and used) being financed has seen upward movement year on year, with a clear move from under R200,000 into the over R300,000 bracket. This is partly because a limited number of quality vehicles are available under R200,000, given the high demand in the market and limited supply. The lack of supply has also contributed to consumers migrating from the R200,000 R300,000 band to more than R300,000, with quality used vehicles difficult to source.

“What’s clear is that the SA automotive industry can’t rely on traditional vehicle ownership to drive itself forward. While the

market is still dominated by a vehicle ownership-based model, the real opportunity going forward lies in enabling alternative mobility models such as subscription services, which open up new audiences and segments to the industry, and create opportunities for broader mobility inclusion,” said Reddy.

RENTAL SALES

Year to date, 334,010 new vehicles have been sold in SA, representing a 19.6% gain over January-November 2021. Naamsa reported that 49,413 new vehicles were sold in SA last month, an 18.2% increase on November 2021. Rental sales were strong as hire companies bought 14.7% of total vehicles and 20% of passenger cars, preparing for a bumper festive season.

Mark Dommisse, chair of the National Automotive Dealers’ Association (NADA), said these sales are important to the second-hand vehicle market, as rental models will filter down to the used-vehicle market in a year or two, helping to alleviate the relative shortage of quality, low-mileage preowned models that have been in short supply due to the Covid-19 pandemic and sell-offs by the rental firms.

“The consumer trend of buying less expensive and smaller cars, usually SUVs or crossovers, continues and, fortunately, the stock position has improved to meet this demand.

“Toyota is still recovering from lost production due to the four-month stoppage at its plant in Durban caused by flooding in April and the manufacturer is catching up on deliveries that should have been made earlier in the year, which is affecting the market positively,” Dommisse said.