Pocket pinch drives consumers to used cars

(Shutterstock)
(Shutterstock)

Johannesburg -  The effect of continued economic pressure on the pockets of South African consumers has created an increasing demand for used cars, according to the latest Vehicle Price Index (VPI) report released by TransUnion on Thursday.

The impact of macro-economic factors is clearly evident and TransUnion expects the demand for used vehicles to continue, said Kriben Reddy, director of product development at TransUnion Auto Information Solutions.   

Used car price inflation showed an increase of 2.41% in the second quarter of 2015, up from 0.58% on a year-on-year basis. New car price inflation, however, has softened from 7.01% to 5.35% in the same quarter.

The vehicle financial registration data analysed by TransUnion shows that the ratio of new to used vehicles financed has widened from 1.65 - that is one new vehicle to every 1.65 used vehicles financed - to 1.78 on a year-on-year basis.

“Price inflation on used cars typically tracks price inflation of new cars, a trend that has remained consistent over the past few quarters. However, in the current quarter, this trend has changed," said Reddy.

READ: Consumer confidence nosedives

He said typically this means that new car price inflation is softening, or increasing at a lesser rate, while the price inflation of used cars is increasing at an accelerated pace.

"The last time this trend was observed was in the third quarter of 2013. It is clearly indicative of reduced consumer confidence and buying power as a result of on-going economic pressure,” said Reddy.

He pointed out that according to the latest Consumer Confidence Index (CCI) of the Bureau for Economic Research (BER), consumer confidence is at an all-time low, with declines the like of which were last seen in 2000.

READ: New vehicle sales will hit a ceiling in 2015

"Consumers are under continued pressure as a result of factors such as increased fuel prices, rising electricity costs, an unstable exchange rate and increases to the cost of living," said Reddy.

"These pressures mean that consumers are left with less disposable income, directly impacting their buying decisions on all purchases, particularly those as large and significant as a vehicle."

WesBank data indicated that the demand for used vehicles, as measured by the number of finance applications received, increased by 10%, year-on-year in the first half of 2015. Conversely, the number of new vehicle finance applications only increased by 3%, year-on-year, for the same period.

This is explained by the widening price gap between a new vehicle and a comparable used vehicle. Over the last 12 to 18 months this price difference has grown, mainly as a result of the continued weakening of the rand, which has forced manufacturers to effect new vehicle price increases that are well above CPI rates.

“Household debt remains at high levels, and this has affected consumer credit profiles to the point where the new, stricter amendments to the National Credit Act (NCA) have resulted in more declined applications,” explained Rudolf Mahoney, head of brand and communications at WesBank.

“This will, no doubt, drive more buyers to seek more affordable vehicles, of which there is abundance in the used market.”

ALSO READ: Earning well, yet no vehicle finance

ZAR/USD
16.97
(+0.38)
ZAR/GBP
21.14
(+0.44)
ZAR/EUR
19.06
(+0.60)
ZAR/AUD
11.74
(+0.28)
ZAR/JPY
0.16
(+0.61)
Gold
1777.09
(+0.54)
Silver
17.99
(+0.09)
Platinum
810.00
(-1.04)
Brent Crude
42.09
(+1.84)
Palladium
1903.00
(+0.34)
All Share
54617.19
(+1.54)
Top 40
50309.77
(+1.49)
Financial 15
10214.89
(+2.12)
Industrial 25
76156.33
(+1.23)
Resource 10
50768.18
(+1.58)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1541 votes
I am taking a hit, but should be able to recover in the next year
23% - 2006 votes
My finances have been devastated
34% - 3011 votes
It's still too early to know what the full effect will be
25% - 2186 votes
Vote