SA’s new car sales hit a major speed bump in tough environment

South Africa's car sales have hit a major speed bump in a tough economic environment. Despite lower inflation rates, the buying activity in the car sector is leaning more towards the used car market. The used-to-new vehicle ratio has increased to 2.16 in the second quarter of 2019, indicating a significant preference for pre-owned vehicles. Kriben Reddy, Head of Auto Information Solutions, joined CNBC Africa to delve into the factors driving this trend. Reddy highlighted that the used car market in South Africa has been larger than the new car market for several years. Consumers are opting for used vehicles primarily due to affordability and the value proposition they offer. This shift towards used cars has been noticeable over the past decade. Reddy emphasized that the term 'used' encompasses relatively newer vehicles, such as 1 to 2-year-old models, rather than older, high-mileage cars. The focus is on good quality used stock available through dealerships. The volatile economic climate plays a significant role in the consumers' purchasing decisions. Factors like a decline in business and consumer confidence, along with a rise in fuel prices and new vehicle costs, have made affordability a key concern for buyers. The average finance term for vehicles has extended from around 60 months to 72 months, allowing consumers to manage monthly repayments but also keeping them in the market for a longer period. Reddy also discussed the potential for alternative vehicles, like electric cars, to influence the market. However, he believes that the current trends are more driven by economic factors than a shift to electric vehicles. Financial institutions, particularly banks, have been affected by the decrease in both new and used vehicle sales. Reddy pointed out that while financial agreements have decreased in line with vehicle sales, there is a need for more innovative financing options to cater to changing consumer preferences. One solution could be shorter-term lease agreements or subscription-based models that provide consumers with access to vehicles without the long-term commitment of ownership. Reddy stressed the importance of considering the total cost of ownership when evaluating different financing options. While traditional financing may seem cheaper upfront, factors like maintenance, warranty, and servicing costs could make leasing or subscription models more cost-effective in the long run. Despite the decline in car sales volumes, automotive industry players are adapting to the market challenges. Manufacturers and dealerships are focusing on customer service and innovative solutions to retain customers. Strategies like extending motor plans and offering value-added services aim to enhance customer loyalty and satisfaction. The industry is shifting towards a more customer-centric approach to offset the decline in sales. Reddy highlighted that dealers are actively pursuing customers with attractive deals, but the timing and affordability constraints play a crucial role in closing sales. Overall, the automotive industry in South Africa is navigating through a challenging period, with a focus on customer-centric solutions and value-added services to sustain business in a tough economic climate.