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Tyler Spears
 
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What a Weak Rand Means for Used Car Buyers

21 January 2014, 19:00

The case for buying a used car seems even more plausible now as the current year, 2014 finds traction. And although January can be summed up in three simple words – the broke month – there's enough room to plan for your next vehicle purchase sometime later in the year.

The are two concepts we need to get into grips with regarding further reading of this article. The first is Currency Depreciation, which Economists explain as the devaluing or weakening of one currency over another, in our case: the South African Rand over the US Dollar. The second concept is Inflation, which is the price appreciation of goods and services over time; I won't go into the mechanics of money circulation, etc, that brings about this.

Currency

After reading a long and well-researched piece on Moneyweb.co.za by Mike Schüssler, one of the leading Economists in South Africa, detailing the way the Rand has performed against other currencies over the past few years, I thought of the impact that could or has had on our buying patterns as consumers, most especially motor vehicles' purchases. According to the research, the Rand has weakened by 36% over the US Dollar during since the 2008 world economic crisis.

The impact of which was suppose to have been increased exports to the USA and other countries. Yes, this has occurred, but unfortunately not to the degree we wanted. Simply put, we have not leveraged our weak currency to the best of our capabilities as we could have. Vehicle exports from SA to America have increased marginally over the investigated time period according to NAAMSA, the National Association of Automobile Manufacturers of South Africa.

The questions as to why that has happened are not in the scope of this article, but one thing is certain however, a depressed US economy could have impacted this as the country is a consumption-led monster. As well as that government's attempts to prop-up their manufacturing industry, thus readying the likes of Ford USA for exports to countries like ours.

At the same time, we have seen an increased demand for South Korean-made vehicles (as well as cars from other parts of South-East Asia) all of which are imported. This is kind of odd considering our weakened currency, which means more expensive imported cars.

Considering the above, new cars from the likes of Hyundai and Kia should be more expensive moving forward simply because of our weak Rand. Then suddenly a car buyer like you and I, gets a better option buying a used Hyundai for example, instead of a brand new one straight from across the Indian Ocean.

This bodes well for domestic car manufacturers like Toyota, based in Durban, and Volkswagen, based in Uitenhage, who now have a weak currency on their side to further extend their new vehicle sales. The growing demand for new Toyotas would possibly increase the retail price of these new cars, thereby decreasing the value of used cars for sale.

Inflation

The above is a very simplistic way of looking at things, but it's enough to give an understanding of the current status of the automotive industry in brief. The impact of inflation is also very simple, almost everything goes up in price over time. The motor manufacturers however, can take loses on this by increasing their new vehicle prices only slightly, just to stay competitive or not raise their prices at all.

This encourages car buyers to buy new vehicles, thereby leaving enough stock on the showrooms of good used car dealers. This bounty of variety is great for those of us considering second-hand cars. The ratio of new vehicle to used vehicle sales in 2013, was in the favour of new cars by some margin - 1,6 used cars sold to every new car sold in the fourth quarter of 2013 from 1,66 in the third and 1,70 in the second quarter. In other words, the rate at which people are buying new cars is higher than that of used cars.

According to TransUnion, an industry specialist, this is set to continue for the next few years, while new vehicle inflation was 3.8% in from 2012 to 2013.

An important question to ask as a consumer is how your real-wage increases have kept up with inflation, below or above it, because you should remember, owning a vehicle competes with other goods and services that eat out your wallet, and although it might be cheaper to own a car than using that same disposable income for other goods, those other goods might be more worthwhile for your well-being, medicines and education for example, thereby forcing you out of the car buying market for a while.

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