Algeria, May 3, 2018

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Here’s why now might be a good time to buy a new car in South Africa

Credit bureau TransUnion has released its latest Vehicle Pricing Index for the first quarter of 2018, showing that price hikes in the new and used car markets in South Africa slowed during the first quarter of 2018.

The VPI is a quarterly report 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.

It showed that new and used vehicle prices increased by only 2.3% and 2.9% respectively over the past year, down markedly from 8.8% and 3.7% previously.

The VPI, TransUnion said, has slowed down in the new passenger market below inflation for the third consecutive quarter.

“A lower VPI indicates slower pricing increases and, therefore, greater relative affordability for the consumer,” said Kriben Reddy, head of auto information solutions at TransUnion.

“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.”

According to the index, total financial agreement volumes in the passenger market decreased by 6% from Q1 2017 to Q1 2018. New passenger finance deals, however, increased by 6%, while used decreased by 10%.

TransUnion also found that the South Africans were buying noticeably fewer used cars, as the used-to-new ratio decreased from 2.49 in Q1 2017 to 2.09 in Q1 2018.

The percentage of cars (new and used) being financed below R200,000 has remained consistent to last quarters numbers with 43% in Q1. This has shown a marginal increase in used car loans which has being consistent at around R242,000.

“This indicates a shifting emphasis on the value proposition that consumers place on their vehicles, as they look for the maximum amount of value from a car.

“This further emphasizes the shift to new, which is shown by the decrease in the used to new ratio. The marginal price increases in new vehicles have kept the finance values consistent over the last three quarters,” TransUnion said.

“This year the automotive industry has had major changes in their environment with VAT increases and ad valorem tax. The South African financial markets has reacted positively with a decline in interest rates on the back of the decision by Moody’s to retain South Africa’s international and domestic credit rating at investment grade,” said Reddy.

The improvement of the automotive industry has been credited to the lower inflation rate, decrease in interest rates and strengthening of the rand, which allowed the manufacturers to slow down on new price increases, he said.

The new vehicle price increases has been overtaken by used vehicle prices, which has been indicative to the demand switch from, used to new.

“We expect the VPI trend to continue into the next quarter with modest increases in volume for new and used vehicles. The positive exchange rate should ideally keep the input costs down which will keep the price increases low although the increase in VAT will lessen the positive impact.”

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