Used car prices continue to soar

The automotive industry has seen a significant shift in pricing dynamics over the past year, with new vehicle prices decreasing while used car prices have surged at their fastest pace since 2004. According to Kriben Reddy, the Vice President of Auto Information Solutions at TransUnion Africa, these pricing trends are being driven by a combination of factors in the market. Reddy explains that the aggressive pricing of new vehicles, influenced by currency and exchange rates, has led consumers to shift towards the used car market, resulting in a low new vehicle price index. On the other hand, the shortage of semiconductors has disrupted the supply chain for new vehicles, creating delays and stock shortages, further fueling the demand for quality used vehicles. One of the key points highlighted by Reddy is the impact of the COVID-19 pandemic on consumer behavior and the automotive industry. The pandemic has led to a 30% loss in new vehicle sales in 2020, affecting the supply of used vehicles in the market. With consumers working from home and reducing their travel, the demand for vehicles has shifted, with dealers now facing challenges in sourcing enough used vehicles to meet the increasing demand. Additionally, issues of financial distress among consumers have resulted in higher delinquency rates on finance agreements, further affecting the supply of used cars. Another important aspect discussed is the role of rental companies in the used car market. Rental businesses often provide a source of quality used vehicles for dealers, but the industry faced significant disruptions during the pandemic. As rental companies begin to resume their fleet renewal cycles, a volume of used cars is expected to enter the market, helping dealers to replenish their stock. Dealers are also adopting creative strategies to attract customers, such as marketing initiatives to buy customers' existing vehicles and offering trade-in options to facilitate the purchase of new cars. Despite the challenges in the market, Reddy notes that the current trends are likely to persist, with no immediate relief expected in the semiconductor chip shortage. As consumers continue to seek value in the used car market, dealers will need to adapt to shifting buying behaviors and find innovative ways to source and sell used vehicles. The dynamics of supply and demand, combined with external factors like the pandemic and global supply chain disruptions, are shaping the future of the automotive industry in South Africa.