South Africa's vehicle market is undergoing significant changes as consumers increasingly seek more affordable ownership options. According to TransUnion’s Vehicle Pricing Index (VPI) for Q3 2023, dealerships and financial institutions are adapting to these demands by offering substantial discounts, incentives, and extended loan terms.
Lee Naik, CEO of TransUnion, highlights that financially distressed consumers are leaning towards cost-effective mobility solutions, including older, lower-priced used vehicles. This trend is further supported by dealerships providing unprecedented trade support and extending finance periods up to 84 months.
Extended Loan Terms Without Balloon Payments
The SA National Dealership Association (NADA) reports that these extended 84-month finance contracts often come without a balloon payment option at the end, which could be a relief for many consumers. However, it is crucial for buyers to carefully assess their financial situation before committing to these long-term loans. Extended loan periods generally mean lower monthly installments, but the downside is that the car's depreciation might outpace the loan repayment, especially in the initial years.
Economic Challenges Impacting Vehicle Affordability
Despite these favorable financing options, inflation and economic constraints are making it challenging for many South Africans to afford vehicles. TransUnion’s data reveals a worrying trend: there has been an 8.4% decrease in the number of financed vehicles from Q3 2022 to Q3 2023, alongside rising loan delinquency rates. Lower-income consumers are now financing fewer vehicles, indicating that economic pressures are pushing them out of the market.
Shift Towards New Vehicles and Rising Loan Values
Interestingly, the market has shifted in favor of new cars. The used-to-new vehicle ratio dropped from 2.05 in Q3 2022 to 1.41 in Q3 2023. This shift is partly due to rising used vehicle prices, driven by supply pressures. TransUnion reports an 8.0% inflation rate for used cars in Q3 2023, compared to 6.5% for new cars. Additionally, the average loan value increased from R317,000 to R359,000 during the same period, reflecting both rising vehicle prices and a shift towards more premium segments among buyers who can afford them.
Attractive Deals and Entry-Level Models
The shift towards new vehicles is also influenced by attractive deals and the introduction of new entry-level models from established and Chinese OEMs. NADA notes that the most significant discount for an entry-level vehicle in Q3 2023 was 12.69%, making the discounted price lower than the listed price from the previous year. Dealers are adopting strategic pricing approaches, often selling vehicles at prices significantly different from their list prices to stimulate sales.
Strategic Pricing and Consumer Benefits
Dealerships and OEMs are employing deep pricing strategies to boost new vehicle sales. Brandon Cohen, NADA Chairperson, points out that consumers are benefiting from these unprecedented opportunities. The evolving market dynamics are providing buyers with more options and better deals, making vehicle ownership more accessible despite economic challenges.
