75% of cars offered in South African market exceed R500,000

Did you know that 75% of the cars offered in the South African market exceed R500,000? Keep on reading to find out more information.

It’s a fact that the automotive market in South Africa is at a crossroads marked by high prices affecting both consumers and car manufacturers. Aspects such as the depreciation of the rand, increased production costs, and rising fuel prices have significantly contributed to this complex situation.

According to TransUnion’s latest Vehicle Price Index (VPI), the costs of new and used cars experienced average increases of 6.3% and 6.4% respectively in the last quarter of 2023, exceeding the inflation rate by 3%.

It is important to note that vehicles over three years old have shown an even more pronounced increase, ranging between 14.6% and 16.7%, limiting people’s purchasing power and forcing them to reconsider their decisions.

When it comes to financing, the percentage of cars financed below R200,000 decreased to 18% in the fourth quarter of last year, compared to 19% in the same period in 2022.

Similarly, the report revealed that 27% of car financing agreements were for cars priced between R200,000 and R300,000, while 55% were used for vehicles exceeding R300,000.

In this context, TransUnion noted that the rise in prices led consumers to seek more reliable cars and that those interested in used cars opted for older models to meet their needs.

According to the entity, “the average amount financed for vehicles increased to R396,000 in the fourth quarter of 2023, compared to R386,000 the previous year, reflecting a growing market trend.”

Despite these changes, the data showed a decrease in the ratio of financed used to new vehicles, dropping from 1.9 in the last quarter of 2022 to 1.2 in 2023.

This change indicates different buyer behavior, possibly driven by greater confidence in the availability and financial viability of opting for new vehicles instead of used ones, given the price increase in the latter market segment.

Data collected by TopAuto shows that less than a quarter of car models available in the South African market are priced below R500,000, representing a challenging scenario for those looking to buy an affordable vehicle.

The decline in car demand during the pandemic led to price increases for many brands to offset the drop in sales and maintain economic viability.

Additionally, companies faced operational challenges due to layoffs and factory closures, affecting production and contributing to the supply-demand imbalance.

Another aspect influencing unit value is the change of consumer preferences, with a notable increase in the popularity of SUVs and crossovers to the detriment of more affordable sedans and hatchbacks.

As an example, Ford discontinued its cheaper models like the Fiesta and EcoSport, replacing them with the Ford Puma at a starting price of 569,900 rands.

It’s important to highlight that luxury vehicles offer a much wider variety of models compared to affordable cars, amplifying the price gap between both categories.

For example, the Porsche 911 presents a selection of 31 different models to choose from, with its most economical version around 2,158,000 rands.

This context creates a challenge for average-income South African consumers, who face the task of balancing the cost of acquiring a vehicle with ongoing expenses like car insurance, maintenance, and fuel.

Considering a budget of up to R222,000 for purchasing a vehicle, as estimated by experts, many models, especially luxury and high-end ones, may be inaccessible for a large part of the population.

This situation is exacerbated by the constant increase in the cost of living in the country, placing greater financial pressure on consumers when making decisions related to purchasing and owning a car.

Car Sales in 2024

After eight consecutive months of decline in sales, the South African automotive industry finally found a reason to celebrate in April 2024.

During April, new vehicle sales recorded growth, reaching 38,172 units, representing a 2.2% increase compared to the same period last year. On the other hand, exports experienced a significant decrease of 23.9%, falling to 23,394 units.

From a total amount of 39,016 units sold, approximately 89.9% corresponded to dealer sales, while the rest were distributed among the vehicle rental industry, government, and corporate fleets. Passenger vehicles showed a 6.1% increase, while light commercial vehicles experienced a 9.0% drop compared to the previous year.

Naamsa CEO, Mikel Mabasa, noted that this year marks a significant milestone for the South African automotive industry. “As we celebrate a century of innovation in car manufacturing, South Africa proudly commemorates its excellence in this field,” he expressed.

The positive performance in new vehicle sales during April is partly attributed to a month without production interruptions, which improved business conditions. However, variables like interest rates, unemployment, and economic growth continue to influence purchase decisions.

In terms of production, Toyota remained at the top despite a decline in sales. The Toyota Hilux stood out with 2,094 units sold in April alone. Suzuki rose to second place, narrowly surpassing Volkswagen, while Nissan experienced a significant drop in sales, partly due to the absence of the NP200 in its production line.

In the same line, the 2023 annual report from AutoTrader shed light on the competitive landscape of the industry, where Toyota consolidated itself as the most popular brand in both new car sales and the used vehicle market. With over 60,000 units sold between January and December 2023, it reaffirmed its dominance.

However, despite its leadership in brand sales, Toyota does not hold the title of the best-selling car in the country. That honor goes to the Ford Ranger, which recorded 20,156 sales in the used market last year, surpassing the Toyota Hilux by a considerable margin of around 2,500 units.

The fact that the Ford Ranger has been the most popular used car in 2023 highlights the diversity of consumer preferences and their focus on the long-term quality and durability of cars.

Thus, Ford ranked as the third-best performing brand overall. Volkswagen maintained second place thanks to its popular Polo and Polo Vivo hatchbacks. Meanwhile, BMW and Mercedes-Benz occupied fourth and fifth places, respectively, with their 3 Series and C-Class sedans.

These indicators reflects the competitive dynamics in the country’s automotive market, where quality, reliability, and consumer preference play a crucial role in brand and model sales and performance. As the industry evolves, it will be interesting to see how brands adapt and compete to meet the changing demands of people in the future.

Watch this space for updates in the General News category on Running Wolf’s Rant.

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