Although 66% of South Africans still rely on vehicle finance to buy cars, they have become less sensitive to finance rates over the last two years. In contrast, the number of those fortunate enough to be able to pay cash for their new set of wheels has increased by 5%.
This is according to research, conducted last year, by TNS on behalf of Standard Bank, which focuses on the car buying habits of South Africans and their ownership of vehicles.
Nicholas Nkosi, Head of Vehicle and Asset Finance – Personal Markets at Standard Bank, says it is not surprising that 66% of car buyers needed finance to pay for their vehicles during 2013, given the drop in the value of the South African currency against major currencies and the increase in vehicle prices and parts. What is surprising, however, is that 32% of those purchasing vehicles managed to pay in cash, an increase of 5% from the figures recorded during 2011 and 2012.
Mr Nkosi says these statistics were gathered from over a thousand car owners who participated in the ownership survey that was part of the 2014 Standard Bank People’s Wheels Awards. “With interest rates having already been raised by 50 basis points, and the uncertainty on whether or not we can expect further increases this year, it will be interesting to see how car buyers react to polls during the 2015 Standard Bank People’s Wheels survey, which went live on 23 June.
Of the five categories polled last year, one of the major changes was that purchasers showed less sensitivity to interest rates charged, with only 40% of those surveyed saying that they based their choice of finance provider purely on interest rates. This showed a decline from 52% in 2011 and 56% in 2012.”
Mr Nkosi considers the fact that South Africans have benefited for quite some time from stable interest rates as one of the reasons for the decline in concern about rates. However, this is now changing and interest rates are beginning to rise as the Reserve Bank moves to contain the inflation rate by increasing the interest rate.
“We can expect a further change in the way South Africans react to interest rates should the Reserve Bank continue to increase the base interest rate,” cautions Mr Nkosi.
Amongst the buyers surveyed it was found that buyers between the ages of 25 and 44 were the most likely to use finance to buy their vehicles. While 69% of buyers between the ages of 25 and 34 took the finance path, this grew to 75% for buyers aged between 35 and 44.
The data also indicated that as consumers got older, their need for finance decreased. The figures show that:
- 67% of respondents between the ages of 45 and 54 reported that they financed vehicles, whilst 32% paid cash;
- Buyers aged between 55 and 64 were more cash flush with 38% buying vehicles for cash and 58% (9% less than the younger 45 to 54 age group) opting for finance;
- The ’65 plus age’ group was even more inclined to pay cash with 68% of respondents saying they paid cash for cars, and only 32% financing deals. This group, however, were also the most likely to retain cars for six years of more.
“These statistics indicate that people are more likely to pay cash for their vehicles as their socio-economic status increases. People between the ages of 25 and 44 are generally coping with the costs involved with beginning full-time employment, buying property, starting and raising families, as well as paying for school and tertiary education fees. However, people aged 55 and upwards have generally reached the peak of their careers, their highest income levels and have more disposable income,” says Mr Nkosi.
TNS South Africa, based in Durban, is part of Kantar, one of the world’s largest insight, information and consultancy groups and has operated in South Africa for more than 30 years. With a presence in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands individual human behaviours and attitudes across every cultural, economic and political region of the world.
Standard Bank People’s Wheels Awards is an annual awards programme established by the Future Group in partnership with TNS and sponsored by Standard Bank. The awards are a result of a nationwide online survey run over a 3 month period to deduce winners in 22 categories. The car which received the highest number of votes is dubbed – The People’s Choice, the overall winner.