New and used vehicle prices continue to surge, vehicle pricing index shows

THE PRICES of both new and used vehicles continued to surge in the third quarter of 2022, according to TransUnion’s latest quarterly Vehicle Pricing Index (VPI).

The information specialist’s latest VPI report showed that new vehicle price inflation rose sharply year-on-year, from 3.8% in the third quarter of 2021 to 6.8% in Q3 2022. However, this was still below South Africa’s overall inflation rate of 7.6% in August.

Used vehicles, however, saw a sharper price increase, surging to 9.0% in Q3 2022, from 6.8% in the same period last year.

TransUnion’s VPI index uses sales data from across the industry to measure the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles from the top 15 manufacturers.

It also appears that South Africans are buying more expensive cars, with TransUnion having noted a clear move from under R200,000 into the over R300,000 bracket. This, it says, is partly due to the dwindling supply of quality used vehicles available for under R200,000.

There is at least some good news on the horizon as TransUnion noted that the new car market is showing signs of normalising as supply levels stabilise. This might not however be enough to ward off a possible slowdown in car sales as consumers seek to cut spending as a result of rising interest rates and other inflationary pressures, TransUnion warned.

The company also noted that the number of financial agreements in the passenger vehicle market were climbing back towards pre-pandemic levels, increasing by 8% year-on-year.

Interestingly, the ratio of used to new vehicles sold shifted significantly in the last quarter. This time last year, 2.41 used vehicles were sold for every new vehicle, but by Q3 2022 this had declined to 2.1, TransUnion said.

Automotive Business Council Naamsa said recently that year-to-date the South African new vehicle market was running 13.6% ahead of the same period in 2021.

However it also cautioned that the spike in vehicle sales that we’ve seen this year could slow down in 2023, in line with the expectation of lower GDP growth.

“GDP growth in South Africa continues to be adjusted downwards and was now expected to be at 1.1% for 2023,” Naamsa said. “In view of the close correlation between new vehicle sales and the country’s GDP growth rate, single digit growth in new vehicle sales could be expected for 2023.”

TransUnion Africa vice president Kriben Reddy believes the surge in new vehicle sales is partly due to consumers re-entering the market as supply chain problems ease and vehicles become more readily available.

“The challenge the industry faces is that now that dealers have largely solved supply issues, there’s going to be an increasing demand problem as the effects of inflation and interest rates start to bite into consumer wallets,” Reddy said.

“A moderation in transport inflation, thanks to fuel price decreases in August and September, offset a build-up in food and clothing price pressures, but we expect price inflation to remain sticky at elevated levels,” he added.

TransUnion’s latest Consumer Pulse report shows that more than half of South African consumers have cut back on spending, and further cutbacks are expected in the coming months.