New SA car sales are on a roll - what does it mean for the used car market?

June 2018 was a good month for new car sales in South Africa – 29 886 new passenger vehicles were sold which represents year-on-year growth of over 4%.

This continues a positive trend over the past two quarters and has been achieved in spite of a grim economic context. It also contrasts with a small decline in the light commercial vehicles, bakkies and mini buses category and a serious drop in export sales.

Taking margins into consideration

Jeff Osborne, head of Automotive at Gumtree SA, says: "Twice as many South Africans still buy previously owned vehicles as buy new ones and the current trend into new vehicles is fueled by a marginal decline in interest rates, some improved confidence and, most, significantly, by pricing.

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"The demand for quality used vehicles has pushed their price up while new vehicle price increases have been repressed in many cases with dealers taking smaller margins.

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"As the price gap narrows, and good maintenance deals are offered, new vehicles become more attractive. That closing of the gap is indicated by the TransUnion Used Car Vehicle Price Index in Q1 2018 rising 3.5% while the New Vehicle Price Index was up by only 2.3%."

Osborne says there are implications in this trend for buyers and sellers of previously owned vehicles.

Current state of the market

"The data shows that 55% of all used vehicles sold are either demo models or are under two years old. That is now a very competitive space and sellers will have to consider lowering their prices.

They can use the Gumtree Price Checker to get a good read on where the sweet spot currently is in the market for their particular vehicle. And buyers of those vehicles should be shopping around and negotiating hard."

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Osborne is convinced that pre-owned will remain king of the local market. "I anticipate a minor retreat for new vehicle sales when manufacturers are forced to up their prices more significantly.

And, regrettably, the brief wave of optimism in the country seems to be retreating which will translate into a reluctance to spend on the full new price tag."