Johannesburg – Consumers will be holding onto their vehicles for longer, given the recent downgrade to junk status, said an industry expert.
The TransUnion Vehicle Price Index for 2017, which collects data from the top 15 vehicle manufacturers to examine yearly price increases, also considered the impact of the downgrade on vehicle pricing.
“We are expecting to see lower access to credit, a weakening currency, rising inflation and even higher interest rates,” said Derick de Vries, CEO of Auto Information Solutions at TransUnion. This means consumers will have less disposable income.
Owning a vehicle will become more expensive as interest rate hikes, higher petrol costs and potential insurance premium increases will drive up finance payments, explained the report.
“A large percentage of South Africa’s vehicles are imported… The weakening rand will increase the cost of new vehicles, or manufacturers will have to reduce margins to entice potential buyers,” the report read.
If the rand depreciates to between R16/$ and R17/$, it will have an “extremely negative effect” on the price of new vehicles, explained De Vries. “Manufacturers may be forced to pass on the higher pricing to consumers which will result in a contraction of vehicle sales, as more than 70% of vehicles are imported and subject to currency volatility,” he explained.
Repair costs might also increase if parts have to be imported.
De Vries said consumers may have to consider fixed interest rates when taking out loans.
The VPI report showed that the pricing of new vehicles increased to 8.8% for the first quarter of 2017, compared to 6.6% in the first quarter of 2016. The price of used vehicles increased to 3.7% from 2.2% in the previous year.
The report attributed the higher pricing to reliance on imported vehicles, which is impacted by currency volatility. Consumers will also be facing above-interest inflation rates.
READ: Junk status: Hard times ahead for consumers
Currently, inflation rates are “uncomfortably high” which means rate cuts are unlikely to be introduced later this year, Fin24 reported.
Consumers show greater interest in used vehicles, with 2.49 used vehicles financed for every new vehicle.
Volkswagen and Toyota lead with a market share of more than 50% of new vehicles; they are also leaders in the used vehicle market.
Top manufacturers by sales volume for Q1 2017
“Another continuing trend is that the percentage of cars, both new and used, being financed under R200 000 remains constant from last quarter which shows that consumers are ‘buying down’ and looking for more value for their money,” said De Vries.
The report indicates that 40% of used vehicles financed in the past quarter were less than two years old. Of these, 25% were under a year old and 15% were under two years old. However, growing demand for used vehicles may drive up their prices, explained De Vries.
ALSO READ: New car sales skid
Fin24 previously reported that new vehicle sales statistics for February 2017 fell by 4.4% from the previous year. Read Fin24's top stories trending on Twitter: