Price increases for both new and used cars have actually slowed down during the first quarter of 2018, compared to the same period during the previous year.

According to the TransUnion SA Vehicle Pricing Index, new and used car prices went up 2.3 percent and 2.9 percent respectively year-on-year – a sharp drop from the 8.8 percent and 3.7 percent of the first quarter of 2017.

That 8.8 percent average rise in new car prices, in particular – caused by a long period of rand weakness – pushed customers away from buying new cars and into the used-car market, according to TransUnion boss Kriben Reddy, but now the pendulum is swinging back to the new vehicle market, he says.

Thanks to the stronger rand, lower interest rates and lower inflation, South African finance houses financed 2.09 used vehicles for every one new car in the first three months of 2018, compared to 2.49 in 2017; in fact the rise in car prices, both new and used, has been slowing gently for the past three quarters.

A decrease in car prices due to stronger rand

New-car price increases below CPI inflation

The number of new car deals financed in South Africa rose six percent in the first quarter of 2018 against the final; quarter of 2017, whereas used-car finance deals declined by 10 percent.

Of course, said Reddy, the impending rise in VAT also helped push new car sales as buyers jumped in to beat the expected price rises, but “the interest rate cut announcement in March also helped push vehicle sales higher,” said Reddy.

“In addition, many dealers chose to absorb the VAT increase rather than passing it on, so that new-car price increases are now actually below CPI inflation.”

The number of new cars financed in South Africa during the first quarter of 2018 increased by six percent, while used-car deals went down by 10 percent.

Extra benefits

Four out of five new vehicles in South Africa, he pointed out, are imported, so the stronger rand helps car companies keep prices down, making the extra benefits of buying new, such as warranties and service plans, even more attractive.

“But we’re coming off a low base”, he said, “with new cars sales of around 450 000 – 500 000 a year, and we have a long way to go to get back to where we were in 2007, at well over 600 000.

Nevertheless, Reddy believes that the market has bottomed out and that car sales, especially of new cars, are now on the rise – which is good news for second-hand car prices as well with fewer buyers chasing the same finite number of cars.

Source: IOL Motoring