Rising costs have hit the sale of new vehicles in recent quarters, with a lack of new commercial vehicle sales to small businesses ringing alarm bells about costs and broader economic growth.
This is according to a top credit bureau CEO and motor vehicle executives who spoke to Business Times on the sidelines of the South African Auto Week in Cape Town this week.
TransUnion CEO Lee Naik said data in their latest vehicle sales report showed a clear preference for used cars over new ones.
“The increase we saw in used-car pricing was quite minimal compared to over 4% in new cars. What that tells us about the consumer is that ... in a tough environment, they feel they’ve got to make better choices.”
The TransUnion report says vehicle sales and production remained stable in the second quarter of 2023, but by the second quarter of 2024 new vehicle sales dropped 6% quarter over quarter, highlighting a more challenging economic environment.
“Amid affordability pressures, many consumers delayed new-vehicle purchases or opted for used vehicles. With new-vehicle prices rising 4.4% in quarter two of 2024, vehicle sales continued shifting towards used cars whose prices only increased 0.6%. The ratio of used-to-new vehicles financed moved to 1.44 compared to 1.8 in quarter two 2023, reflecting affordability issues.”
Naik said consumers were looking for more utility in their vehicles, which was prompting individuals and households to reduce the number of personal vehicles and settle on one car with the highest level of utility and reliability.
The concerning thing is that passenger vehicles are down slightly less than light commercial vehicles
— Neale Hill, Ford South Africa president
“They are sticking to the car they have. They’re not shopping. We find that most households are moving from a two-car to a one-car household. And how we know that is we find that in the used car space the highest segment that’s growing is the crossover SUV.”
He said as the market starts to ease with further repo rate cuts and fuel price relief going into the fourth quarter of 2024, manufacturers of new cars will likely start to look at giving consumers more incentives to encourage them to make the leap from a pre-owned to a new car.
“You may find more incentives, whether it’s a fuel allowance, whether it’s a discount, whether it’s better trade-ins. New-car manufacturers tend to respond by saying ‘How do I give a better proposition to the consumer?’.”
Absa's head of strategic and business analytics in vehicle and asset finance, Henry Botha, said once further interest rate reductions and fuel price relief came through, more confidence would pervade the market. The auto sector was preparing for October and November vehicle sales data — typically the time of year where sales peak.
“Especially, quarter three is an index-normal quarter. It’s not a very high number. And then quarter four is where most sales happen. So, usually, October and November are your biggest sales months, and after the interest rate reduction we’re confident that it will go well.”
He said of particular concern was the lack of growth in purchases of occupational vehicles by small businesses.
“The small businesses aren’t coming through yet. So, they buy light commercial vehicles, not so much heavy [vehicles], but that’s the part of the sector that we want to see growing. That comes with business confidence, it comes through programmes by corporates, by government, to develop SMEs that grow the economy.”
He said the South African banking sector would not ease their lending criteria and engage in risky lending.
“The whole financial sector is very well regulated. Reckless lending [is] not tolerated [and the industry has] no appetite to go and do that. I think we’ve seen from a few institutions over the past two decades that are not as well regulated as banks that that is where you get a shock to the system.”
Ford South Africa president Neale Hill said pressure on new-vehicle sales was being felt across the South African auto industry, with sales down by about 6% by the second quarter.
“The concerning thing is that passenger vehicles are down slightly less than light commercial vehicles. So, if you look at it in terms of the distribution or the breakdown in terms of vehicle sales reported by body style or by vehicle, [there] definitely seems to be a feeling that our economic activity ... is a symbol of that.”
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