Used-car prices on average increased by just 0.6% in the second quarter of 2024, well below the rate of general inflation which hovered at 5.2% during this period.
Over the same timeframe, new-car prices rose by a far more substantial 4.4%.
This has seen more consumers being channeled to the pre-owned sector with the used-to-new ratio of financed vehicles moving from the historic low of 1.15 in Q1 to 1.44 in Q2 2024.
In simpler terms, this means South Africans are now applying to finance 1.44 used vehicles for every one new vehicle.
These insights were revealed in credit agency TransUnion’s latest Vehicle Pricing Index (VPI) report, which tracks automotive prices and finance data in South Africa.
Consumers under pressure
The Vehicle Asset Finance (VAF) sector in South Africa experienced a slowdown in terms of both its yearly and quarterly performances in Q2 2024, marking the fifth consecutive quarter of year-on-year declines in new VAF accounts.
The total number of active VAF accounts from Q2 2020 to Q2 2024 stagnated to 2.1 million, its lowest point in four years.
Despite this, the total balance of VAF accounts grew by 16%, driven by higher interest rates and the overall value of financed vehicles.
During the three months between April and June 2024, the average loan value for a new car stood at R400,000, up from R391,000 in Q1.
Of the total VAF accounts tracked by TransUnion in the quarter, only 17% consist of vehicles below R200,000, 28% those in the R200,000-to-R300,000 bracket, and 55% in the over-R300,000 sphere.
“The growth driven by the low-interest-rate environment has effectively been erased, with new accounts unable to gain traction,” said Marcia Mayaba, Sales Vice President of Auto Information Services at TransUnion South Africa.
“This places additional pressure on the automotive industry to attract new financing customers and stimulate demand, particularly for new vehicles.”
Fortunately, those who are paying off their cars are not falling behind on payments, with delinquency rates staying consistent in Q2 2024 compared to previous periods.
“This stability suggests that, although fewer new accounts are being opened, those within the system are maintaining their repayments, reflecting the sector’s resilience in managing defaults even as it navigates a challenging economic environment,” said Mayaba.
New kids on the block
A key trend that arose from VAF data in Q2 2024 was the growing presence of younger individuals in the sector.
The share of new VAF agreements opened by Gen Z consumers, who are classed as people born between 1997 and 2012, grew from 7.9% in Q2 2023 to 10.9% in Q2 2024. Meanwhile, Baby Boomers’ (1955 to 1964) share dropped from 8.3% to 7%.
Millennials (1981 to 1996) continued to dominate the market, however, accounting for 40% of new-vehicle purchases.
“The growing influence of younger generations signals a shift toward more flexible, digital-first financing options and sales of electric vehicles (EVs) gradually gaining traction as sustainability becomes a central concern for younger buyers,” said Mayaba.
On that note, TransUnion sees a lot of potential for EVs in South Africa going forward.
“The adoption of EVs is inevitable, particularly as younger, environmentally conscious consumers drive demand,” said Mayaba.
“While the initial uptake has been slow due to higher costs and limited infrastructure, improvements in battery technology, the expansion of charging networks, and potential government incentives are set to accelerate this shift.”
However, this is dependent on the expectation that more affordable EV models will become available in the near future, combined with tailor-made financing options for the younger generation.
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