The rate of increase in new vehicle prices is declining despite demand outstripping supply due to problems caused by the global shortage of semiconductors.
TransUnion Africa reported on Tuesday that the local South African auto market saw a significant change in price trends in the third quarter of 2021.
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He said the new vehicle price index, which effectively measures the inflation rate of new vehicles, was cut in half from the same period in 2020, while the used vehicle index more than doubled in the face of the changes. in the demand and supply of consumers.
New versus used
The latest Vehicle Price Index (VPI) from TransUnion SA revealed that the rate of increase in new vehicle prices slowed from 7.6% in the third quarter of 2020 to 3.8% in the third quarter of this anus.
In the same period, the rate of increase in used vehicle prices soared from 2.3% last year to 5.9%.
The VPI measures the relationship between the increase in the price of new and used vehicles in a basket of passenger vehicles that incorporates the 15 largest manufacturers.
TransUnion Africa Vice President of Automotive Information Solutions Kriben Reddy said that the change in price trends for new vehicles is being driven by a combination of changing consumer demand and supply problems in the auto market. new ones, where the global shortage of computer chips continues to plague engine manufacturers.
“As a country, we import about 70% of our cars, so we are definitely feeling the effects of the shortage, and there is no clear end in sight,” he said.
Reddy said that with a shortage of new vehicles and demand exceeding supply, there should be a continued rise in prices for new vehicles.
He said there would have been some anticipated purchases of new vehicles by original equipment manufacturers (OEMs) and SA-based distributors, which could have had some impact on vehicle prices.
But Reddy believes that OEMs at certain times, under normal circumstances where the industry is not faced with supply problems, try to “almost self-correct vehicle prices” when prices hit a threshold that hurts sales.
Reddy said the decline in the rate of increase in vehicle prices looks aggressive from a year-on-year perspective, but in reality it has been a fairly gradual slowdown in quarter-on-quarter terms.
“He tells me it’s almost like a self-correcting mechanism that OEMs use to stimulate sales,” he said.
However, Econometrix chief economist Azar Jammine said that a very important contributor to the slowdown in new vehicle price trends is that the rand depreciated sharply in the second quarter of 2020 and then began to recover until the second quarter of 2021.
Jammine said that the US dollar remained quite strong during this period, meaning that the rand gained quite a bit of ground against the currencies of other countries from which South Africa imports parts and components, especially euros and British pounds.
Good news for buyers and sellers
Reddy said the dramatic change in pricing trends and patterns in the past year is good news for troubled consumers.
Not only are new vehicles now relatively more affordable, he said, but consumers will also benefit from a number of incentives offered by manufacturers to try to stimulate the market.
Additionally, those consumers looking to trade in their old vehicles will find dealerships willing to pay big bucks for quality cars, with a growing shortage of used vehicles in the country, he said.
Reddy added that although consumers will pay higher prices for used vehicles than a year ago, they will likely get a better quality vehicle for their money because many consumers continue to reduce and / or reduce the number of vehicles in their households.
He said there is also a growing trend for consumers to downgrade from a two-car home and opt for a slightly more expensive vehicle, such as swapping out two sedans for a sport utility vehicle (SUV).
Reddy said this trend is expected to continue in the coming months as vehicle prices rise in real terms.
“The macroeconomic outlook has improved dramatically, with positive annualized GDP growth of 19.3% in the second quarter of 2021, which is higher than the -3.2% in the first quarter of 2021.
“Consumer confidence remains low and the household debt-to-income ratio remains high, putting significant pressure on consumers’ disposable income.
“We are in an exciting and rapidly changing market where quality new used vehicles are in short supply at a time when consumers are looking for the best value for money,” said Reddy.
“The pressure on the quality used car market will continue until prices become too expensive relative to new cars. The industry will continue to operate in a challenging environment for the foreseeable future. ”
Ratio of used to new
TransUnion reported that the ratio of used to new increased year-over-year from 2.35 in 2020 to 2.4 in 2021, meaning that 2.4 used vehicles are sold for every new vehicle.
Reddy said the ratio is tilting even more in favor of used vehicles, but he suspects that the start of the shift to new vehicles will begin in the next two to three quarters.
But Reddy said the challenge consumers will face is whether they will be prepared to wait for a new vehicle due to a shortage of stock.
He believes some consumers will switch to a one-year-old vehicle instead.
However, Jammine believes that a slow shift to new vehicles has already begun.
“That’s one of the reasons new car sales haven’t been so bad recently,” he said.
TransUnion said 35% of used vehicles traded are less than two years old, which continues to decline as the supply of quality used vehicles remains under pressure.
He said demo models that were financed accounted for 6% of used vehicle financing deals in the third quarter of 2021, indicating that consumers are opting for older vehicles as quality supply dwindles. and increases the pressure on disposable income.
However, there was more activity in the new and used vehicle market for financed vehicles in the range of more than R300,000 than below R200,000 and in the price range of R200,000 to R300,000.
Reddy attributed this to continued price increases that have pushed many new vehicles above the R300,000 price tag.