Younger South African consumers are moving away from the traditional models of vehicle finance and instead relying on newer offerings such as subscription services and vehicle-on-demand (VoD) platforms.
This, as economic headwinds such as high interest rates and fuel prices keep buyers out of the automotive market for longer.
Credit agency TransUnion’s latest Vehicle Pricing Index (VPI) shows that in the second quarter of 2024, new-car prices rose by an average of 4.4% with new-car sales simultaneously dropping by 6%.
As a result, Vehicle Asset Finance (VAF) accounts dipped to 2.1 million, the lowest point recorded by TransUnion in four years.
Despite the contraction, the total balance of VAF accounts grew by 16% owing to rising vehicle prices and bloated interest rates.
These indicators suggest that more and more motorists are delaying upgrading their current cars after paying them off, or are unable to purchase new vehicles due to modern car prices being out of reach for a large portion of the populace.
Owing to these factors, subscription and VoD models provide an alternative way for cash-strapped individuals to satisfy their transport needs, said TransUnion.
The future of mobility
Subscription services refer to offerings such as Toyota’s Kinto One and Avis iLease, which allow a customer to drive and use a vehicle for several years without taking ownership of it.
Consumers essentially “rent” the car for an extended period through one monthly payment which is based on the cost of the vehicle, the length of the contract, and the monthly mileage parameters. Depending on the service, insurance and maintenance may also be bundled into the monthly fee.
In select cases, it’s proven to be more affordable to opt for vehicle subscriptions than more traditional financing.
Meanwhile, VoD solutions let consumers use a car as and when they need it.
Usually facilitated through some kind of a smartphone app or website, VoD offerings charge users either a monthly subscription fee or a usage-based fee and in turn, give them access to a network of cars that they can use “on demand.”
One such service in South Africa was “Mini Sharing”, which was exclusively available to residents of the BlackBrick apartment block in Sandton, Gauteng.
Via the dedicated Mini Sharing app, BlackBrick residents were able to book one out of a fleet of all-electric Mini Cooper SE hatchbacks for a specific time slot and drive the vehicle for as long as they needed before returning it to a specified parking area.
They used their phone as a digital key instead of being forced to collect and return a physical fob, and the price of usage was determined by the mileage covered and time spent in the vehicle. Insurance, electricity, toll fees, and other associated costs were also included.
Another key benefit of subscription and VoD offerings is that customers can generally opt out at a moment’s notice should their financial circumstances change and they can no longer afford the services, unlike traditional bank finance where they are locked into a contract for a pre-determined period and face serious consequences should they no longer be able to pay their monthly dues.
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