Decline in disposable income affects car market

Lee Naik, the CEO of TransUnion Africa, says the rate of increase in new vehicle prices was relatively low in the first quarter of 2024 at 4.7% compared to 6.3% in the corresponding quarter in 2023.

The rate of increase in used vehicle prices declined in the same period to 2.1% from 8.3%.

Naik says the nominal vehicle finance loan amounts consumers are taking up has grown but is not keeping pace with rising vehicle costs.

He says despite the relatively low comparative price increase, data released by automotive business council, naamsa, reveals significant shifts in the vehicle finance landscape, with the sale of new passenger vehicles financed in the first quarter decreasing by 8.4% compared to the corresponding quarter in 2023 while the total number of vehicles financed in this period declined by 10.6%.

“Consumers are showing hesitation almost across the board. 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 time of purchase holding onto their vehicles for longer,” says Lee.

Lee says the average loan value for financed vehicles increased to R391 000 in the first quarter of 2024 from R387 000 in the corresponding quarter in 2023 but this 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,” he says.

Lee adds that while overall sales volumes remain low for both used and new vehicles, TransUnion vehicle price index (VPI) data shows that the used-to-new ratio of financed vehicles has shifted from 1.86 used vehicle for every new vehicle acquired in the first quarter of 2023 to 1.15 used vehicles for every new vehicle purchased in the first quarter of this year.

He says this indicates a growing preference for new vehicles among buyers entering the market, which is likely driven by these smaller price hikes in conjunction with incentives being offered by dealers.

Lee says consumer buying patterns show that a growing number of households are opting for one multipurpose vehicle instead of maintaining multiple vehicles, with many substituting their transport demands with ride-hailing services, such as Bolt and Uber.

Subscription services are also playing a role in helping consumers who have been precluded from longer-term traditional finance products, he says.

“The South African vehicle market is navigating a complex economic landscape resulting in modest shifts in consumer behaviour and market dynamics.

“This environment is expected to keep vehicle sales suppressed until greater economic stability and consumer confidence return.

“The ability to innovate, enhance financial inclusion and adapt to the evolving mobility landscape remains crucial for achieving sustainable growth in the industry.”