75% of car models offered on the market exceed R500,000

CAPETOWN, South Africa-SUVs and crossovers have increased in popularity, leaving behind sedans and hatchbacks.

The automotive market in South Africa is at a crossroads marked by high prices affecting both consumers and car manufacturers. Aspects such as the depreciation of the rand, increased production costs, and rising fuel prices have significantly contributed to this complex situation.

According to TransUnion's latest Vehicle Price Index (VPI), the costs of new and used cars experienced average increases of 6.3% and 6.4% respectively in the last quarter of 2023, exceeding the inflation rate by 3%. It is important to note that vehicles over three years old have shown an even more pronounced increase, ranging between 14.6% and 16.7%, limiting people's purchasing power and forcing them to reconsider their decisions.

When it comes to financing, the percentage of cars financed below R200,000 decreased to 18% in the fourth quarter of last year, compared to 19% in the same period in 2022. Similarly, the report revealed that 27% of car financing agreements were for cars priced between R200,000 and R300,000, while 55% were used for vehicles exceeding R300,000.

In this context, TransUnion noted that the rise in prices led consumers to seek more reliable cars and that those interested in used cars opted for older models to meet their needs. According to the entity, "the average amount financed for vehicles increased to 396,000 rands in the fourth quarter of 2023, compared to 386,000 rands the previous year, reflecting a growing market trend."

Despite these changes, the data showed a decrease in the ratio of financed used to new vehicles, dropping from 1.9 in the last quarter of 2022 to 1.2 in 2023. This change indicates different buyer behavior, possibly driven by greater confidence in the availability and financial viability of opting for new vehicles instead of used ones, given the price increase in the latter market segment.

Data collected by TopAuto shows that less than a quarter of car models available in the South African market are priced below 500,000 rands, representing a challenging scenario for those looking to buy an affordable vehicle.

The decline in car demand during the pandemic led to price increases for many brands to offset the drop in sales and maintain economic viability. Additionally, companies faced operational challenges due to layoffs and factory closures, affecting production and contributing to the supply-demand imbalance.

Another aspect influencing unit value is the change of consumer preferences, with a notable increase in the popularity of SUVs and crossovers to the detriment of more affordable sedans and hatchbacks. As an example, Ford discontinued its cheaper models like the Fiesta and EcoSport, replacing them with the Ford Puma at a starting price of 569,900 rands.

It's important to highlight that luxury vehicles offer a much wider variety of models compared to affordable cars, amplifying the price gap between both categories. For example, the Porsche 911 presents a selection of 31 different models to choose from, with its most economical version around 2,158,000 rands.

This context creates a challenge for average-income South African consumers, who face the task of balancing the cost of acquiring a vehicle with ongoing expenses like car insurance, maintenance, and fuel. Considering a budget of up to 222,000 rands for purchasing a vehicle, as estimated by experts, many models, especially luxury and high-end ones, may be inaccessible for a large part of the population.

This situation is exacerbated by the constant increase in the cost of living in the country, placing greater financial pressure on consumers when making decisions related to purchasing and owning a car.