South African used car market starting to ‘soften’

Posted By: adminPosted date: February 26, 2015In: Automotive News, Cars

According to the latest TransUnion Vehicle Pricing Index (VPI), which tracks car prices in South Africa, the used car market is softening, relative to new vehicles.

Keith Dye, CEO of TransUnion Auto Information Solutions said of the figures, “Historically, used car price trends tend to lag behind those of new cars. However, for the past couple of months, we have seen used car pricing trends keeping pace with new, rising almost simultaneously.”

According to data collected by TransUnion’s records of financial registrations, the trend towards purchasing used rather than new vehicles, which emerged in the first quarter of 2014 and continued into Q3, went into reverse for the final quarter of the year.

However, that decline may well have been affected by the purchasing behaviour of car rental companies, which tend to renew their vehicles during the last quarter of the year, thus temporarily inflating the number of used cars sold.

Used car inflation has increased on a year-on-year basis for the fourth consecutive quarter, yet it is still surpassed by the rise in new car prices, which again outpaces South Africa’s Consumer Price Index (CPI).

Rudolf Mahoney, head of research and PR at WesBank said, “Increases in new car prices continue to exceed headline CPI. This has resulted in a significant price gap between new and used cars, with more consumers opting to finance used cars.”

Another factor affecting vehicle sales is the recent, sharp drop in fuel price, which offers welcome relief for drivers. The prevailing low interest rate in the country also boosts consumer confidence. The average vehicle replacement cycle has remained consistent at 36 months for the last year, according to Mahoney.

As for the year ahead, the TransUnion VPI report predicts a flattening out of new car price inflation and price stability. However, the performance of the rand still remains a risk. Fluctuating exchange rates will continue to have a large impact on pricing in South Africa this year for the automotive and other markets.