The South African automotive sector continues to grapple with significant macroeconomic challenges, says TransUnion Africa CEO Lee Naik.

Persistently high interest rates and negative economic growth have eroded consumer and business confidence, leading many to defer long-term financial commitments, including vehicle purchases.

Announcing TransUnion’s first quarter 2024 Vehicle Pricing Index (VPI), Naik notes that this cautious sentiment is expected to persist.

“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.

“We also see consumers who opted for high balloon payments at the point of purchase holding on to their vehicles for longer.”

Data from Naamsa | The Automotive Business Council for the first quarter of the year reveals shifts in the vehicle finance landscape, with the sale of new passenger vehicles, and the total number of vehicles that were financed in the period, decreasing by 8.4% and 10.6%, respectively, compared with the first quarter of last year.

This is despite relatively low comparative price increases of 4.7% for new vehicles in the first quarter of this year (compared with 6.3% in the first quarter of 2023) and 2.1% for used vehicles (8.3% in the first quarter of 2023).

TransUnion VPI data also shows that the used-to-new ratio of financed vehicles has shifted from 1.86 in the first quarter of 2023 to 1.15 in the first quarter of this year, indicating a growing preference for new vehicles among buyers entering the market, most likely driven by these smaller price hikes, in conjunction with sales incentives offered by dealers.

The average loan value for financed vehicles increased to R391 000 in the newest VPI, up from R387 000 in the first quarter of last year.

This increase remains below the inflation rate for both new and used-vehicle prices, as well as the consumer price index.

“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,” says Naik.

Consumer buying patterns also 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, he adds.

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

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

“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 remain crucial for achieving sustainable growth in the industry.”