Vehicle sales in South Africa dropped sharply in the first quarter of this year in the face of ongoing vehicle price inflation, declining consumer disposable income and negative consumer and business sentiment.

TransUnion Africa says the number of financial agreements in the passenger vehicle market in the first three months of the year decreased by 12% year-on-year, with new car sales down 2.6% and used-car sales down 17.7%.

This current trend is unlikely to reverse soon, given the current macroeconomic climate in South Africa of low growth, frequent power cuts, and decreasing disposable income making consumers and businesses more cautious, says TransUnion Africa CEO Lee Naik.

“The vehicle market in South Africa is facing significant challenges. The rising cost of vehicle ownership makes it difficult for consumers to buy new vehicles.

“The low supply of new cars from previous years, due to Covid-19, the global semiconductor shortage, together with the current high demand for used vehicles, means there is a shortage of quality used vehicles,” adds Naik.

“That means that consumers have limited options.”

TransUnion’s latest Vehicle Pricing Index (VPI) shows ongoing year-on-year increases in both new- and used-vehicle pricing.

The new-vehicle price index increased from 4% in the first quarter of last year, to 6.3% in the first quarter of this year, with used-vehicle prices increasing from 7.9% to 8.1% over the same period.

In the used-car market, the price of three-year-old vehicles increased only by 10.2% year-on-year, and those of new midsized sports utility vehicles (SUVs) by 11.4% in the same period.

Hybrid and electric vehicles only increased by 3%, albeit off an already high price point.

The TransUnion VPI measures the relationship between the increase in pricing for new and used vehicles from a basket of passenger vehicles available from 15 top volume manufacturers. The index is created using vehicle sales data from across the industry.

TransUnion says the pressure on the supply of quality used vehicles saw a further shift in the ratio of used to new vehicles being financed in the first quarter.

A year ago, 2.18 used vehicles were financed for every new vehicle, but this declined to 1.86 in the first quarter of this year.

The last time the ratio of used to new vehicles was this low was in the fourth quarter of 2015.

The number of demo models financed in the first quarter remained stable at 4%, which may indicate that consumers are either being driven towards the new vehicle market, or that they are opting for significantly older vehicles as the supply of more recent models diminishes and price increases exceed earnings growth.

Consumer buying patterns in the South African vehicle market are also increasingly being shaped by increasing interest rates and fuel price hikes, notes TransUnion.

In their search for value, consumers are gravitating towards hatchbacks or downgrading from two-car households and opting for one slightly more expensive vehicle.

SUVs made up more than 47% of total new and used financed vehicles, with consumers aged between 26 and 40 financing almost half of all vehicles.