TransUnion Africa CEO Lee Naik says a tough economic environment characterised by cost-of-living challenges, high fuel costs and currency depreciations have resulted in a notable decline in vehicle sales and financing in South Africa.

However, while this contraction is expected to persist, manufacturers and dealerships are stepping up their efforts to help consumers enter, or re-enter the auto market, he notes.

TransUnion this week released its Vehicle Pricing Index (VPI) for the fourth quarter of 2023.

Actions that vehicle manufacturers and dealerships are taking to egg on sales numbers include discount structures, incentives, trade assistance mechanisms, interest rate reductions on loans, and a focus on monthly payments rather than gross prices.

“These efforts show innovation in an otherwise stagnant sector,” says Naik.

According to the newest VPI, a significant market trend is the increase in the average loan amount for financed vehicles.

TransUnion data shows that, in the last quarter of 2023, the average loan value increased to R396 000, up from R386 000 in the same period in 2022.

This 2.5% average loan value growth comes off the back of a consumer price index of 5.1% in December, and a new-vehicle price increase of 6.3% (fourth quarter, 2023 compared with the fourth quarter, 2022).

TransUnion also reports that there has been an overall reduction in new accounts opened over the last two years, further confirming a decline in purchasing power and volume.

“The net effect of these economic markers is that lower net income consumers are being priced out of the market – they either do not qualify for vehicle loans or are unwilling to add a new debt burden to their monthly budgets.”

This is where the industry is evolving to enable economic participation, says Naik.

“Consumers are benefitting from the introduction of new subscription-based and vehicle-on-demand models and services.

“Renting, station-based car sharing, free-floating car sharing, micro-mobility services, ridesharing and ride-hailing options are increasingly being brought to market to make transport more affordable for consumers, with the end-result promoting financial inclusion, furthering economic empowerment and stimulating economic growth.”

The shift in the ratio of used-to-new vehicles being financed – from 1.98 in the fourth quarter of 2022 to 1.2 in the fourth quarter last year – also signifies a change in consumer behaviour, driven by factors such as improved new-vehicle stock availability, an interest rate that is perceived as being stable, and innovation at dealership level, notes Naik.

These factors are leading to consumers increasingly opting for new, rather than used vehicles.

“Overall, the macroeconomic climate remains incredibly challenging for consumers and continues to affect buying power and spending habits,” says Naik.

“While the data sets in this index end in December 2024, the market indicators continue to tell a difficult story for the South African consumer – first quarter Naamsa sales figures remain depressed, and the cost of owning, running and maintaining a vehicle continue to increase, evidenced by another petrol price increase on May 1. 

“The South African vehicle industry’s ability to adapt and innovate, particularly in embracing new mobility trends, will be essential for sustainable growth,” states Naik.