Consumer car market adopts new buying strategies as sales come under pressure

Nicholas Nkosi, Head of Vehicle and Asset Finance at Standard Bank

New car registrations (Passenger only) in South Africa increased by 2 111 between April and May 2014, consumers are continuing to buy vehicles, but are adopting new strategies to relieve the increasing financial pressure being placed on their household income, says Standard Bank.

The National Association of Automobile Manufacturers of South Africa (NAAMSA) reported that new car registrations increased from 30 873 in April up to 32 984 at the end of May this year.

Briefing the media at a Standard Bank event in Johannesburg, Nicholas Nkosi, Head of Vehicle and Asset Finance at Standard Bank – Personal Markets, said the financial challenges being faced by most South Africans have been put in the spotlight considering that the market has suffered a 7% decline in new registrations comparing year to date May 2013 to year to date May 2014.

However, the market has been granted respite due to the Reserve Bank’s recent decision not to increase the base lending rate despite inflationary pressure on the economy.

“History has shown that a .5% increase in the base interest rate results in vehicle sales dropping by about 2%. While this pressure has been avoided, the relief will undoubtedly prove to be temporary if inflation continues to cause concern to monetary authorities.”

Consumers considering buying new cars will be heartened by rates remaining stable and many will continue with their plans to purchase new vehicles. Those with a short-term view on the potential of interest rates rising could shield themselves from higher rates by buying ‘down’  and taking advantage of the special offers that abound in times like these,” said Mr Nkosi.

“Vehicle affordability has been placed under pressure not only by the low value of the rand internationally, but domestic pressure that has included toll fees, fluctuating fuel costs and increasing vehicle maintenance costs.  As a result, those looking for value in the personal car segment are opting to buy low mileage pre-owned vehicles,” said Mr Nkosi.

“Smaller vehicles are also enjoying an upsurge in popularity. In this competitive sector, demand is primarily being driven by the attraction of lower operating costs. The introduction of high specification levels, which often rival those found in more expensive vehicles, is also driving sales.”

“South African motorists will continue to view cars as an aspirational purchase. Their love affair with vehicle brands will continue to play a major role in purchasing decisions.”

“Brand loyalty will result in many consumers opting to buy vehicles without a deposit. The ‘balloon payment’ option will be accepted as part of these purchases so that monthly payments can be contained within personal budgets.”

Mr Nkosi said the rationale behind these purchases is that these vehicles can be traded in on a regular basis. The costs that would have been incurred by a balloon payment are then avoided as this is simply rolled over into the cost of the next vehicle.

The relative affordability of pre-owned vehicles has seen sales increase dramatically. This is mainly due to the fact that many vehicles were traded in to avoid balloon payments. This meant additional value to pre-owned vehicle purchasers who often acquired vehicles that had maintenance and service plans that were still valid.

“In many cases maintenance and service plans are tied to terms of 100 000 kilometres. When this is reached, many owners sell their vehicles because they have documented maintenance records, and are considered attractive purchases.”

“Although activity in the market will continue, it remains to be seen whether industry predictions that 150 000 new vehicles will be sold in 2014 will be reached,” said Mr Nkosi.

Also view:

Vehicle Finance, Car Insurance and Road Safety

Buying and Selling a Vehicle – Informed decisions and the Vehicle Retailer

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