Prices of used vehicles in South Africa have finally normalised to pre-Covid levels following years of sitting in a bubble.
Data from used-car platform getWorth shows that the average vehicle under R1 million is currently depreciating at a rate of approximately 7% per annum.
This is in stark contrast to 2022 when the average pre-owned ride increased in value by over 2% a year as a result of the Covid-19 pandemic.
Before Covid, it was business as usual for cars to drop in value as soon as they drove out of the dealerships, with only the rarest of wheels not being subject to this phenomenon.
Then came global lockdowns fraught with restrictions on the movement of goods and services between countries, leaving dealer showrooms all but deserted of new models to show customers.
This forced many consumers to the pre-owned market, with excess demand and limited supply consequently pushing up the prices of used vehicles by a substantial amount.
The industry remained constricted in 2023 as high interest rates, record load-shedding, and a deteriorating rand put pressure on household spending.
“Now into 2024, interest rates have stabilized, and in our typical boiled-frog style, South Africans have gotten used to the higher rates. And maybe rates will drop soon,” said getWorth Chief Technology Officer, Mark Ridgway.
“People are coming out blinking into the sun and looking at those bright shiny cars again. But the Rand has tanked, and new cars are seriously expensive. So used cars are opening up again and some prices are levelling off.”
The graph below, compiled by getWorth, shows the like-for-like pricing trends for different car price bands over the last five years:
Post-Covid hangover
Some car owners who purchased their vehicles at the height of the pricing frenzy, whether by choice or out of desperation, are now feeling the consequences of these decisions.
Earlier in 2024, getWorth highlighted that many motorists who bought their cars within the past few years are starting to think about trading them in for new ones, but those who paid elevated prices are discovering that they still owe far more than what their vehicle is actually worth.
This leaves them with limited options – none of which are ideal.
They can choose to keep their car for longer until they break even on it; settle the outstanding debt with their savings and finance a new car with no or a small deposit; or attempt to refinance the balance owed on top of the value of their new car.
The effects this “post-Covid hangover” will have on the pre-owned sector are unknown at this point, but should start to show face within the coming years.
getWorth provided the following tips for car buyers in this situation to help them keep their heads above water:
- Consider buying a used car instead of a new one
- Choose car brands that are known for keeping their value well
- Choose a shorter loan term without a big final balloon payment
- Keep your car for longer until you have paid off enough of your loan
- Avoid adding unnecessary extras to your loan, like certain types of insurance
- Examine carefully what is being offered as part of the package and cross out anything you don’t need
- Don’t roll the shortfall of your current car loan into a new car deal, you’ll have to pay it off eventually
- Be mindful of adding too much mileage to luxury cars, as this can make them lose value faster than you can pay off the loan
“By following these tips, you can better manage your car loan and avoid financial stress,” said getWorth Head of Finance and Insurance, Chantellé Henning.
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