With SA’s car sales in the doldrums, there is an opportunity for the motor industry to offer innovative financial products to expand credit access to underserved consumers.
This is according to TransUnion, which says high interest rates and negative GDP growth have eroded both consumer and business confidence, leading many to defer vehicle purchases and other long-term financial commitments.
TransUnion’s first-quarter 2024 Vehicle Pricing Index (VPI) noted that a growing number of households are opting for one multipurpose vehicle instead of maintaining multiple vehicles. Some consumers are substituting their transport demands with ride-hailing services like Bolt and Uber. Subscription services are also playing a role in helping consumers who have been precluded from longer-term traditional finance products, says TransUnion.
“Consumers are showing hesitation to vehicle purchases almost across the board,” TransUnion Africa CEO Lee Naik said.
“Even as consumers await economic stability and post-election clarity before making major asset purchases, those who purchased vehicles post-2021 have not yet reached a point where their loan balances can be offset by the trade value of their vehicles, and we also see consumers who opted for high balloon payments at the point of purchase holding on to their vehicles for longer.”
In the first quarter of 2024 the sale of new passenger vehicles decreased 8.4% compared to the same period in 2023, said TransUnion. This is despite relatively low comparative price increases of 4.7% for new vehicles (compared to 6.3% in quarter one 2023) and 2.1% for used vehicles (8.3% in quarter one 2023).
The VPI measures the relationship between the increase in vehicle pricing for new and used vehicles, using vehicle sales data collated from the industry.
Sales in May 2024 took a dive of 6,137 units to 37,105 units, a 14.2% decrease compared with May 2023, according to motor industry body Naamsa. It followed a slight rise in sales the month before after eight consecutive months of decline, leaving year-to-date sales of new cars, light commercials and trucks 6% down compared with the first five months of 2023.
Sales of light commercial vehicles, which include bakkies and minibuses, took the biggest hit in May at 19.5% down compared with May 2023, with passenger cars 11.7% down. All market segments experienced a decline in May, with medium truck sales decreasing by 4.3%, and heavy truck and bus sales 17.1% lower than in May 2023.
Buyers were jittery in the run-up to the elections, leading to subdued activity, though there was a noticeable uptick in deliveries on May 30 and 31, said National Automobile Dealers’ Association chair Brandon Cohen. Sales in the second half of the year could be boosted by the significant fuel price reduction in June and another expected drop in July.
While sales of both used and new vehicles are down, TransUnion VPI data shows that the used-to-new ratio of financed vehicles has shifted from 1.86 in quarter one 2023 to 1.15 in quarter one 2024. This indicates a growing preference for new vehicles among buyers entering the market, likely driven by smaller price hikes in conjunction with incentives offered by dealers, said Naik.
The average loan value for financed vehicles increased to R391,000 in quarter one 2024, up from R387,000 the year before. The increase remains below the inflation rate for both new and used vehicle prices, as well as the consumer price index (CPI).
“Nominal loan amounts have grown but are not keeping pace with rising vehicle costs. This reflects both a decrease in disposable incomes and a diminished appetite among consumers for taking on expensive new credit responsibilities,” says Naik.
Banks and carmakers have introduced schemes to make vehicles more affordable, including increased finance terms up to 96 months, and balloon payments where a portion of the purchase price is set aside as a lump sum payment at the end of the finance term.
Banks have also introduced guaranteed future value (GFV) as an increasingly popular form of vehicle finance in SA. As a vehicle ages, its value starts depreciating from the moment it leaves the showroom floor. In line with this depreciation, a GFV plan calculates what the future monetary value of a vehicle will be if specific conditions are met, including mileage and maintenance, and this future value is guaranteed at the start of the agreement.
Car subscriptions such as Toyota Kinto is a growing trend as the mindset of SA car buyers is slowly shifting from one of ownership to usage. The vehicle is returned after the contract period and the monthly costs are lower than buying a car on hire purchase.
The TransUnion first quarter 2024 VPI also suggests that there are opportunities for financiers to target consumers who may be looking to refinance their existing vehicles, while insurers can better manage their risks by re-assessing the value of their customers’ vehicles.
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