02:26 AM

Consumers buying cheaper new and used cars

  Johannesburg, South Africa - South African consumers - hit hard in 2008 with their disposable income under pressure due to rising living expenses and falling real wages - are not only buying fewer cars, they are opting for cheaper vehicles.

That's according to Mike von Höne, CEO of vehicle risk intelligence company TransUnion Auto Information Solutions.  Speaking at the TransUnion Auto Used Car Forum in Sandton today, he said there was a marked move in favour of used vehicles in 2008 with the ratio of new to used passenger vehicle sales widening from one to  1,1 in 2007 to one to 1,8 last year and currently lying at 1to 2.08 for the month of February 2009. 

While the number of new car derivatives in the under R200 000 bracket available in 2008 declined to 23% of the total market from 38% in 2007, these cheaper vehicles held their own, representing 63% of total new car sales.

By contrast, used passenger vehicles valued at under R100 000 made up 53% of all used car sales in 2008, up from 51% in 2007.

Indeed, ordinary consumers appear to be holding on to their cars for longer as they become more circumspect about over-extending themselves and it appears as if they are trying to pay down their existing debt levels before incurring any additional debt.  Von Höne anticipates that both these trends will continue.

Not surprisingly, given the higher demand for lower priced cars, these vehicles lost less value as a percentage of their new list pricing than higher priced cars in 2008.

In addition, two- three- and four-year-old cars fared marginally better in 2008 than in 2007 in terms of holding their value when measured as a percentage of their new list price, an indication of the greater relative demand for used cars.

"However, the gap between Trade and Retail prices widened to an average of 14,54% in 2008 as dealers traded more cautiously in tough economic conditions. This trend is likely to continue as interest costs and stock days bite deeper," von Höne added.

He warned that the averaging process used to quantify the gap between Trade and Retail pricing masked significant differences between brands.  For some brands, the difference between Trade and Retail pricing was as much as 17%, while for others, it was less than 12%.

Finally, he said, there was good news and bad news with respect to car dealers' commitment to the fight against vehicle-related crime.

"The good news is that the number of dealer enquiries to TransUnion Auto regarding the 'pedigree' of a car, increased in 2008, despite the fact that the actual number of cars sold declined.  However, about half the vehicles sold by dealers were not checked out. This is of enormous concern when one considers that of the enquiries that were undertaken, 3,7% had a SAPS interest, indicating that the vehicles in question may have been stolen," he explained.

Looking ahead, von Höne predicted that market conditions would remain tight with potential further dealer consolidations likely. Consumers will remain under financial pressure which will be reflected in their buying conservatively at lower price levels.

However, used vehicles will continue to fair "relatively better" than new vehicles with used vehicle volumes likely to remain comparatively robust. However, margins will remain under pressure with further limited price compression expected in the first half of 2009 followed by some used vehicle price inflation in the second half of 2009 off the back of new vehicle price inflation

"The turning of the interest rate cycle will hopefully herald the start of better times, albeit not until late 2009, early 2010. Following the decline in the prime lending rate from 17% in June 2003, sales units only started to show significant growth in June 2004.  We can apply the same theory to sales units this year," he concluded.

About TransUnion 

As a global leader in information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health, achieve their financial goals as well as make better informed decisions. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs more than 4,000 employees in more than 30 countries on six continents.

TransUnion Auto Information Solutions is South Africa's leading provider of information solutions for the automotive industry.  The company was established in 2005 following the merger of motorONLINE (est. 2000), TransUnion HPI (est. 1997) and TransUnion Mead & McGrouther (est. 1960).