Younger consumers in South Africa are increasingly abandoning traditional vehicle financing in favor of modern solutions like subscription services and vehicle-on-demand (VoD) platforms. This trend is largely driven by economic challenges, such as elevated interest rates and fuel costs, which are causing buyers to hesitate longer before making automotive purchases.
TransUnion’s Vehicle Pricing Index (VPI) and Trends in Vehicle Financing
TransUnion’s recent Vehicle Pricing Index (VPI) indicates that new car prices rose by an average of 4.4% in the second quarter of 2024, while sales of new vehicles fell by 6%. Consequently, Vehicle Asset Finance (VAF) accounts have dropped to 2.1 million, marking the lowest level recorded by TransUnion in four years. Despite this decline, the total balance of VAF accounts increased by 16%, attributed to soaring vehicle prices and high interest rates. These trends suggest that many consumers are either delaying their vehicle upgrades or struggling to afford modern car prices.
The Appeal of Subscription Services
Given these economic hurdles, subscription and VoD models are providing alternative avenues for individuals facing financial difficulties. Subscription services, such as Toyota’s Kinto One and Avis iLease, enable consumers to drive a vehicle for several years without ownership. Customers effectively “rent” a car for an extended period through a single monthly payment, determined by the vehicle’s price, contract duration, and mileage allowances. Many of these services also bundle insurance and maintenance costs into the monthly fee, potentially making them a more economical choice than traditional financing.
Utilizing Vehicle-on-Demand Solutions
In contrast, VoD services allow users to access vehicles as needed, typically facilitated by a smartphone app or website. Users are charged either a monthly subscription or a usage-based fee for access to a fleet of vehicles available “on demand.” One example in South Africa is the “Mini Sharing” initiative, which was exclusive to residents of the BlackBrick apartment complex in Sandton, Gauteng. Residents could reserve an electric Mini Cooper SE hatchback via the dedicated app, using their smartphones as digital keys to unlock and return the cars. Pricing for this service was determined by the distance driven and time used, encompassing insurance, electricity, tolls, and other related expenses.
A notable benefit of subscription and VoD models is the flexibility they offer. Customers can typically cancel their subscriptions on short notice if their financial situations change, unlike traditional bank financing, which often involves long-term commitments and penalties for missed payments.
Conclusion
As South Africans contend with rising vehicle prices and interest rates, subscription services and VoD platforms are gaining traction as attractive alternatives to car ownership. These options not only provide financial flexibility but also cater to the evolving preferences of a new generation of consumers.
