As sales boom, car instalments are eating up a higher percentage of household income than ever

Jason Woosey|Published

South Africans are now spending 16% of their household income on vehicle finance.

Image: NADA

The South African new vehicle market is booming, with sales having hit a 10-year high in September, and with that, there has also been a surge in vehicle finance applications, with this number having grown by 65% over the past decade.

Yet while these are all positive economic indicators, amid growing business confidence in the economy, a somewhat disturbing trend is brewing in the background.

According to ABSA, monthly vehicle instalments now consume 16.1% of the average household income in South Africa, up from 14.3%.

These insights were shared at the recent SA Auto Week, hosted by Naamsa, where the finance institution expressed concern that vehicle prices continue to outpace income growth in South Africa. This is despite an increasing array of imported brands from China and India, offering high-value products that undercut the established manufacturers.

The average new vehicle finance amount in South Africa, according to the latest available data, is R401,000. Financed over 72 months, with a 10% deposit, at the prime interest rate of 10.5%, the theoretical average monthly payment for a South African household currently stands at R6,876.

WesBank marketing head Lebo Gaoaketse reiterated that household budgets remain strained and affordability is still a key consideration in purchase decisions.

He said levels of demand for new cars were at unprecedented levels. While sales volumes match those of 10 years ago, applications have increased by 28%, Gaoaketse said, this despite the repo rate having been lower, at 6%, in 2015.

“It is interesting to note the shifts in the market from 10 years ago within a similar volume,” says Gaoaketse. “In a slightly lower interest rate environment, much more disposable income provided consumers the opportunity to replace their vehicles much more often. South Africa’s new vehicle market is selling similar volumes in an environment where consumers are holding onto their cars for longer. That must be a positive sign for future growth,” Gaoaketse added.

ABSA said recent sales figures pointed to a divergence between sales and financing.

While Naamsa has reported a year-on-year growth of 21% for the new vehicle market, ABSA has noted a shift in market dynamics. The distinction, it said, lies in the mix of new and used vehicles.

“Finance contracts for new vehicles surged by 24%, exceeding Naamsa’s measure, while those for used vehicles grew by 11%. This indicates a shifting balance in the market, where used cars remain dominant, but new models are beginning to gain ground, particularly among younger, aspirational buyers,” said Charl Potgieter, Absa’s managing executive for vehicle and asset finance.

Brand dynamics are also shifting in South Africa, with Chinese and Korean brands making rapid inroads, particularly among females and buyers in the 35 to 45 age group, while German brands continue to lose market share.

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