Confidence certainly appears to be returning to the South African economy, which bodes well for both the new and used automotive markets in 2011.
Major banks are recording lower default rates and the interest rate recently dropped to a level previously seen more than 30 years ago. As a result, workers are enjoying good income gains and this will support motor trade recoveries, potentially for many years to come.
Since December 2008 the interest rate cuts have totalled 6,5 percentage points, and on a R1 000 000 bond at prime rate the monthly repayment would have declined by around R5 542 per month. It is realistic under present circumstances to see the rand head for R6,50 to the American greenback and CPI inflation of close to 3 per cent, which could see a further rate cut. As we navigate into 2011 I am willing to predict another rate cut, with prime falling to 8 per cent.
In the meantime, we can expect used car inflation to keep falling, mainly because of improved supply. Used vehicle shortages are not as drastic as they were six months ago… Most of the major car rental companies are owned by groups with their own dealer distribution channels, but small independent used car dealers is still under pressure to secure inventory.
Financial agreements of sale (new and used passenger) indicate a relatively steady ratio of 1,8 used to one new sale. With current market conditions this ratio is expected to continue moving in favour of new vehicles. The returning shift in relative demand for new over used cars was being driven by several factors; one was the closing value gap between new and used vehicles.
“New car prices have largely stabilised, while used prices have been increasing on the back of higher demand and a shortage of quality, low mileage units” said Mike Von Hone of TransUnion.
Chatting to my colleagues in the new vehicle franchise arena, there is clear evidence of the OEMs once again flexing their muscles and opening additional outlets. Surprisingly, even more new models are reaching the market, but soon we will see the inevitable happen when the manufacturers and importers are forced to streamline their line-ups to contain and control cost.
So, after a relatively stable 2010, expect 2011 to experience slower used car sales growth of 10 to 12 per cent, in line with new car sales expectations.
Read the full-length version of CAR used car expert Meyer Benjamin's State of Play feature in the January 2011 issue of CAR magazine – on sale December 20.
