South Africa’s cheapest new car is too expensive for the average person

The average South African in July 2022 took home R14,340 – 0.9% lower than the same month a year before – revealed BankservAfrica in its latest take-home pay index.

WesBank previously advised that in order to comfortably afford a vehicle and not stretch their finances too thin, consumers must not spend over 20% of their salary per month on car payments, insurance, maintenance, and fuel combined.

This gives the average motorist a monthly vehicle budget of R2,868 if they were to strictly follow WesBank’s guidance, which means that they are unable to afford even the cheapest vehicle on the South African new-car market.

Rising prices

If we were to disregard the additional costs and only focus on a vehicle finance instalment of R2,868 per month, we can determine what most South Africans can “afford” to spend when buying a car:

• Monthly payment – R2,868
• Payment term – 60 terms (5 years)
• Interest – 10%
• Deposit – 10%
• Balloon – No balloon payment
• Extras – No optional extras

This shows that the average car buyer with the average salary is only able to “afford” a vehicle that costs roughly R145,000.

However, the cheapest new car available at the moment is the Suzuki S-Presso 1.0 GL at a starting price of R156,900, equating to a monthly instalment of almost R3,100.

Then comes the unescapable additional costs such as fuel, insurance, and maintenance, which can easily be equal to the finance amount.

As such, to responsibly afford the most affordable vehicle in the country, the average South African should earn around double what they currently do.

Despite this disconnect between salaries and car prices, financing data collected by TransUnion during the second quarter of 2022 found that 75% of vehicles financed in the country were above R200,000, regardless of whether they were new or used, indicating that many car buyers are overspending to get their preferred set of wheels, or that they might be forced to.

Fortunately used car prices are stabilizing and new-car supply is looking up, but we are not out of the woods yet and analysts believe that pre-Covid market conditions may only return past 2024.