Vehicle prices below inflation for 4th consecutive quarter

JOHANNESBURG – The impact of inflation has made new and used vehicles cheaper.

The latest TransUnion South Africa vehicle pricing index released yesterday revealed that the rate of increase in new vehicle prices dropped to 2.6percent in the second quarter from 5.4percent in the same quarter last year, while used vehicle prices fell to 2.5percent from 3.6percent during the period.

TransUnion said this was the fourth consecutive quarter that the vehicle price index for new passenger vehicles had dipped below inflation.

It said the outlook for new vehicle sales was promising, with the index at levels almost half the consumer price index (CPI), which was last seen in early 2013.

Kriben Reddy, the head of TransUnion Auto in South Africa, said current pricing trends were “very good news” for consumers, particularly as some car brands had managed to reduce their prices over the past 12 months. For instance, the new Polo Vivo 1.4 is 3.6percent less expensive than a year ago, and the cost of a Hyundai Grand i10 Fluid 1.2 is down 2.9percent.

Other cars in the entry-level band show similar declines, with the Kia Picanto down 6.3percent and the Ford Figo showing no inflation for 12 months, he said.

Reddy added that Trans-Union’s research showed that certain luxury brands had even reined in their price increases, with the price of the Mercedes E-Class increasing by only 0.9percent in the past 12 months, while the Volvo XC60 had shown no inflation in this period.

“At a time when consumers are feeling the pinch from price increases in areas like fuel, as the economy struggles to gain ground, these lower prices provide significant relief,” he said.

TransUnion attributed the current pricing trends to a number of factors, including lower input costs, CPI inflation, reduced interest rates, competitive financing structures and the streamlining of some product lines.

However, Reddy warned that the industry was at a sensitive point in the cycle, and a weak rand, potentially higher interest rates and global trade wars were likely to weigh on imported component costs, which would be passed on to consumers in the months ahead.

But Reddy did not expect to see a major impact in the next few months, adding there was likely to be a delayed effect as tariff changes in certain geographies took effect over the longer term.

The used-to-new ratio decreased to 2.05 used vehicle for each new vehicle in the second quarter from 2.41 used vehicles for each new vehicle in the corresponding quarter last year.

Reddy said 43percent of used vehicle sales were for vehicles under two years old, with 9percent of these sales of demonstration models.

Jeff Osborne, the head of Gumtree Auto, said used vehicle sales were still higher than new car sales despite the demand shift from used to new vehicles. Osborne attributed this slowdown to manufacturers and importers limiting price increases to help their dealers sell more new vehicles in a tough market.

He said this meant new vehicles buyers were being offered preferential financial terms, trade-in assistance, no-cost accessories and manufacturer discounts to boost sales.

TransUnion expected the current vehicle price index trend to continue into the third quarter, with slow price increases stimulating demand and resulting in marginal increases in volume or sales remaining the same.

– BUSINESS REPORT