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New cars are back in fashion as competitive prices drive sales growth, says TransUnion

2018-05-03 18:00

TransUnion

Image: Motorpress

Despite public holidays and national industrial strike action, new vehicle sales continue to improve in SA with 36 346 units sold in April 2018.

"New cars are back in vogue during the first quarter of the year as competitive prices driven by rand strength, lower interest rates and inflation boosted demand by consumers on the hunt for enhanced value," says TransUnion.
 
TransUnion SA's Vehicle Pricing Index (VPI) for new and used vehicle pricing dropped to 2.3% and 2.9% in Q1 2018 from 8.8% and 3.7% in Q1 2017, respectively.

A lower VPI indicates slower pricing increases and, therefore, "greater relative affordability for the consumer", says TransUnion. 

The VPI is a quarterly report compiled by TransUnion that examines the link between the year-on-year price increases for both new and used vehicles, drawing data from a selection of South Africa's most popular passenger vehicles from 15 top-volume manufacturers. 

Used vs New

The used-to-new ratio created from the data, based on finance deals registered in the last quarter, indicates SA finance houses are financing 2.09 used vehicles for every one new vehicle as compared to 2.49 in Q1 2017.

This follows the trend of the VPI where new car prices had slowed down over the last three quarters.

READ: Another good month for SA car sales - Naamsa
 
While the pending VAT and fuel levy increases in April led to a slight lift in demand in the first quarter as purchasers looked to buy before the increases kicked in.

Head of TransUnion Auto, Kriben Reddy, said the positive impact of a reduction in interest rates, lower inflation rates, strengthening of the rand and slow price increases from manufacturers all played important roles.

Reddy said: "While demand was caused in part by the pending tax increases, the interest rate cut announcement in March also helped push vehicle sales higher.

"Other positive factors included an improved political climate since the end of 2017 and a slight lift in consumer and business confidence. This move was therefore more than just trying to beat the VAT increase and it is very significant that new pricing is now below CPI inflation."
 
Reddy added that many dealers have chosen to absorb the VAT increases rather than passing them on via higher prices.

Strong rand - lower prices 

Reddy explained: "The industry has been building up towards the higher tax rate for a while and so it did not come as a total surprise. However, what would sway the market more is that the bulk of vehicles are imported – about 80% - and this meant the currency had a direct impact on prices because when the rand is in a good position, manufacturers can bring pricing down." 
 
According to the data, the used passenger vehicle pricing index has been consistent in 2017, ranging between 3.5% and 3.7% although in Q1 2018, TransUnion observed a drop to 2.9%.

                                                          Image: iStock

The index measured the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles which incorporates 15 top volume manufacturers.

Vehicle sales data collated from across the industry was used to create the index.
 
Reddy said: "We are coming off a low base and are hovering around 450 000 - 500 000 new cars being sold a year, so we are still trying to get back to 2007 levels and clearly still have a long way to go despite all the positives. However, we probably saw a bottom in the vehicle market some time in 2017 and this sector is now on the rise, specifically in the new vehicle space."

TransUnion cautioned consumers to be very careful when making major purchase decisions like buying a second hand, or upgrading to a new car.
 
He said: "Consumers must still ensure that from a credit perspective they closely watch affordability and manage their credit health – they must make sure the total cost of ownership is worked out and calculated carefully.

"For example, while you might think you are saving on interest rates, the petrol price alone sees your operating costs go up. Then you add VAT to all the goods you purchase on a monthly basis, including insurance premiums, and you may need to reassess. It is important to take a standpoint this is only one price and base your decision on that." 

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