South African Car Sales Stagnant Despite Lower Inflation, Used Market Thrives

 Although South Africans are experiencing lower inflation, car sales remain stagnant. Now buying activity in the car sector is more amongst the used car market as to the new vehicle ratio increased to 2.1.6 in the second quarter of 2019. Now joining me to unpack these numbers is Crib and Ready, the head of Auto Information Solutions. Now you've done a bit of research into this thing. A lot of people out there watching you own cars will say hello, I've been buying second-hand cars for the last 10-20 years. But how much do you think this second-hand market is taking off? So the used car market in South Africa is much bigger than the new car market. And it has been that way for many years. Probably around the last 10-12 years there's been a significant shift that consumers finance more used vehicles than new. And the reality is that in our economy it's a price point. So it's about affordability, it's about the value proposition and that's why consumers tend to opt for used vehicles rather than new. But the term used also is used loosely. Used typically means a 1-year-old, a demo, a 2-year-old. It's what's being sold or retailed through a dealer floor. So the volume is not really sitting in a 10-year-old vehicle with high mileage, etc. It's more the good quality used stock that's available. As far as I can see it from the figures that you were coming up with, people are looking at a brand new car out of the box, which everyone likes to have. And they're actually sorry, giving perhaps 30... Well, how much over the differential, 40% maybe, for a good second-hand car. And surely, is it just hard times or is it also people are thinking about electric cars and they may not have petrol cars maybe in 5-10 years time? So from what we're seeing alternatives or electric vehicles is not really the big factor. It's definitely the economic climate. Business confidence is down, consumer confidence is down. If you look at the disposable income that's available to a consumer, and if you just go back over the last few years, so there's been a VAT increase. A few, you know, CPI is sitting at 4.4%, but fuel in itself over the last year has risen by almost 10%. New vehicle pricing, if you go a little bit further back, probably down 2013 or so, is actually risen around 37%. So it's definitely a factor for affordability and what consumers can afford. And again, you know, it's a very, very expensive operation by in a car all the way. Most people in this country-powered credit, as we know, through the banks. Surely the banks must be taking a heck of a knock. If people are playing less now for cars than they were maybe 10, and in the boom times of like 20 years ago. Absolutely. So the financial agreements or financial deals are down as well, along with vehicle sales. And if you look at this last quarter, so overall it was down about 7% about new and used. New vehicles were down 7% in total and used as about 2% down. And that's been trending in that direction for a while. The other challenge is that because consumers look at affordability in their monthly repayment, they tend to opt to extend their periods or their finance periods. So, you know, if you go again a few years back, you probably were averaging 56 months or 60 months in a total term or finance term. Whereas now we're averaging around 72 months as the term that's taken up. And what it means is typically consumers being put out of the market for a much longer period because it's more difficult to trade in a vehicle when the finance period is longer. And also people looking to hang on to vehicles after they paid off. I mean, I know a lot of people do that, including me. Because, no, I mean, it's just simple economics and the fact that people are struggling to make ends meet. Where do you think the car market's going over? I mean, I touched there on the fuel cells and the electric cars. Do you think they would come into a time maybe where cars, people would do without and public transport more and also even write down the bicycles? Do you think? No, I mean, I think a lot of people are these days very fashionable thing to do. Yeah. Look, I think in the short term, it's about changing probably the way vehicles are financed because to your point of affordability is an issue and generally the South African population finances or takes credit on to buy. But the ownership is bound to that finance agreement. But what people actually want is access to a vehicle. You don't really want to own a vehicle. And I think once those two things are dealing in the short term and more creative financing options for shorter periods, and it's almost a better lease type of option, almost a subscription-based type of option where you can have a vehicle for a year as an example. You pay a set amount. It's inclusive of insurance. There are payers, the maintenance, the warranty. And after a year, you either return the vehicle or you can change it for something different. How does that term differentiate to buying something in terms of cost? I mean, just going into it and saying, oh, lease it for a year. How much more are you likely to pay than if you pay it on repayments? So I think you've got to look at it more holistically and probably factor in the total cost of ownership of a vehicle. So when you buy on a normal high-purchase agreement or finance agreement, you've got to change the tires on that car for two years. When it comes out of the mode to plan on the warranty, if you keep it for a longer period, which to your point, people are typically doing now. The maintenance on that vehicle, the servicing, all of that is your cost to bear. On the lease or subscription type model, the total cost of ownership should be lower than on a typical traditional financing model. So just lastly and overall, I mean, how should the great custodians of the car industry in South Africa, how should they be feeling from after what you've uncovered? Look, the volumes are definitely down. I don't think anyone's going to be like where the volume of the declines are. But what we're seeing is that either the manufacturer, the brands, or even the dealer groups are being more creative and innovative. So customer service is key to them. So if the customers differently make sure that they come back into their workshops to do a service or a warranty. So if they're not making more volume sales or more margin on sales, they make it through to other means. But that has a direct positive impact back to the customer. Another thing we're seeing is extensions of motor plans as an example. So recently, one of the premium brands extended their plans up to 10 years, which has a true fault effect. So one also keeps consumers in the brand for longer. But it does add value back to the consumers or because you do have a motor plan or service plan on your vehicle for the next 10 years. You've got confidence in that vehicle that at least you're not worrying about the costs when it does come time to repair or service, etc. Just one last question. I mean, you know, in the hard times, the banks are ringing people up trying to persuade them to take credit. Why aren't the car dealers ringing people up saying, listen, I'll take you off 50 or 100,000? You come down now. I mean, because in the old days, you say, well, I'll take you off 10,000. Thank you very much. But I don't know why they didn't be more aggressive. Look, I think they are. But again, it's a factor of you can market as much as you want to consumer. If a consumer can't take up that offer or deal or the timing is not right, you're not going to get a sale anywhere. So I think they're definitely trying.

Although South African’s are experiencing lower inflation, car sales remain stagnant. Buying activity in the car sector is more amongst the used cars market as the used-to-new vehicle ratio increased to 2.16 in the second quarter of 2019. Joining CNBC Africa to unpack these numbers is Kriben Reddy, Head of Auto Information Solutions. 

SA’s new car sales hit a major speed bump in tough environment 

Although South African’s are experiencing lower inflation, car sales remain stagnant. Buying activity in the car sector is more amongst the used cars market as the used-to-new vehicle ratio increased to 2.16 in the second quarter of 2019. 

SA’s new car sales hit a major speed bump in tough environment

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SA’s new car sales hit a major speed bump in tough environment

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