Used-car prices in SA have soared in the past year while new-car price inflation has slowed, as a result of increased consumer demand for pre-owned vehicles.
The demand is being driven by consumers trading down, and by the stock scarcity of new vehicles due to the global computer chip shortage. Motor companies have cut vehicle production by more than 6-million units so far in 2021 because of a shortage of semiconductor microchips and the figure for the full year could reach nearly 8-million.
In SA, motor dealers have been unable to meet market demand for some new vehicles because of limited stock. New-car sales remain well below pre-Covid levels, with passenger cars and light commercials about 20% down this year compared to the three-year pre-Covid average.
“As a country, we import about 70% of our cars, so we’re definitely feeling the effects of the [chip] shortage — and there’s no clear end in sight,” said Kriben Reddy, vice-president of auto information solutions for TransUnion Africa.
Changing consumer demand has eased inflation for new vehicles in the third quarter of 2021, which halved from 7.6% to 3.8% compared to the same period last year. Over the same period, the used-vehicle index soared from 2.3% to 5.9%, according to the latest TransUnion SA Vehicle Pricing Index (VPI). The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles which incorporates 15 top volume manufacturers.
TransUnion reports that 2.4 used vehicles are now sold for every new vehicle, compared to a ratio of 2.35 a year ago. Year on year, total finance deals increased 8% for new passenger cars and 11% for used cars.
The trends are confirmed by a number of automotive sales portals. Cars.co.za says that in the four years leading up to the first Covid-19 19-related lockdown, all used-car price categories had displayed steadily and gently falling prices. Since the first lockdown, however, and particularly since about August 2020, the normal downward trend has reversed and prices have risen.
Marc Friedman, CEO of online vehicle selling platform Weelee.co.za, says even before the stock shortage of new cars, Weelee.co.za was already seeing an increase in used-car sales due to the high price of new cars.
“With this combination of both short supply and high prices, we have seen that people who would typically have bought a new car, are now opting for good quality used vehicles,” says Friedman.
“This has caused the market to rely more heavily on quality used car stock and this stock, in turn, becoming more scarce, with motor dealers having to pay higher prices for it as a result. This gives the consumer who is selling their quality used car the opportunity to get a higher price for it.”
According to AutoTrader, in the past year, prices of the country’s top 10 most searched-for used vehicles have risen R47,229 on average. This 16.5% increase is a tangible result of supply and demand, says AutoTrader’s CEO George Mienie.
The website recorded more than 54-million searches in September 2021, 17% higher than the 46-million searches in September 2020. At the same time there was a 4% reduction in available stock year on year, meaning fewer consumers are selling vehicles, says Mienie.
The Toyota Hilux is the most searched-for model on AutoTrader and its average price rose 19.9% from September 2020 to September 2021. The pre-owned car with the highest price hike in a year was the BMW 1 Series at 27.6%, followed by the Ford Ranger (24.2%) and Volkswagen Polo (22.4%).
At the other end of the scale, used Volkswagen Golfs had the lowest year-on-year appreciation at 6.9%. At 7.9% the Mercedes-Benz C-Class is the only other car to record a sub-10% increase.
Mienie says it may be advisable not to delay a used car purchase. “If we see an increase in demand and a reduction in stock, used vehicle prices may continue to increase,” he says.
There is also a growing trend of consumers downgrading from a two-car household and opting for one slightly more expensive vehicle, for example, trading two sedans for one SUV, says TransUnion’s Reddy.
Those looking to trade in their old vehicles will find dealers willing to pay top dollar for quality cars, with a growing shortage of used vehicle stock in the country, he says.
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