In the second quarter of 2020, South Africa’s new-vehicle pricing rose above inflation for the first time since Q2 2017, according to TransUnion’s Vehicle Pricing Index (VPI).
The VPI for new vehicles “rose sharply” to 6,5 percent in the second quarter of 2020, from 3,1 percent in Q2 2019 (and to 3,1 percent from one percent for used vehicles).
As a reminder, the VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles that incorporates 15 top-volume manufacturers. The index is created using vehicle sales data from across the industry.
According to TransUnion, the country’s automotive market experienced “record lows” in Q2 2020, as the combination of minimal trading due to the COVID-19 pandemic and the “depressed economy” saw a whopping 71 percent decline in the number of new and used cars financed over the same period in 2019.
Of course, we should point out the local motor industry did not operate during April and was at “minimal capacity” in May. In fact, full operation resumed only in June.
Kriben Reddy, head of Auto Information Solutions for TransUnion, said the ongoing impact of the pandemic had not allowed the industry to recoup sales lost in April, and as vehicle pricing continued to increase while consumers came under increased financial strain.
“The focus for the industry now needs to shift to resilience, recovery and creating a strategy to deal with new consumer behaviour. By using learnings from the previous global recession in 2007-2009, when it took 24 months for the car market to recover, the industry can create robustness and understanding of the ‘new’ market more quickly, accelerating its recovery,” Reddy said.
Interestingly, the VPI report showed the used-to-new vehicle ratio had been trending upwards since lockdown restrictions eased, from an average of 2,16 in 2019 to 2,31 in Q2 2020. That means for every new vehicle financed, 2,31 used vehicles are financed.
According to TransUnion, the make-up of used vehicle sales showed 33 percent of vehicles financed were less than two years old, with demo models making up six percent of used financed deals.
“What is critical is how long it will take consumers to recover from the economic effects of the lockdown. The longer the constraints of COVID-19 continue, the greater the impact on the industry and the broader economy. TransUnion’s ongoing Financial Hardship research shows that consumers expect to be just over R7 000 short on their budgets every month, on average. That’s more than the cost of ownership of an entry-level car. This might keep a lot of people out of the market for even longer,” said Reddy.