South Africa's Vehicle Industry Faces Affordability Challenges Amid Shift in Spending Habits

South Africa's vehicle industry remains under pressure as affordability challenges continue to drive down new vehicle sales. The Q2 2024 vehicle price index published by TransUnion Africa this morning shows a 6 per cent decline in new vehicle sales and a 6.1 per cent drop in total vehicles financed from the previous quarter. The report also notes rising EV adoption, driven by younger consumers and innovation in vehicle financing. To discuss, I'm joined by TransUnion Africa's Chief Executive Officer, Lee Naiker, as well as George Mienie, Chief Executive Officer of Autotrader. Gentlemen, welcome to Power Lunch Southern Africa and thank you for your time. Thank you, Namunda. So, I would like to start with you, Lee. A lot of the factors that drive up new vehicle sales prices seem to be easing. So, we're talking about inflation and interest rates coming down, and I suppose some of the supply chain disruptions we saw during and post the pandemic period have also eased. When can we expect to start seeing new vehicle prices coming down? Well, I think it's an interesting time for us, but we're not there yet. As a South African nation, we had a 25 basis point interest cut just a few weeks ago, but all that has meant for the average consumer, we typically look, Namunda, at a person that has a million-ran home loan and a 350,000-ran car. In real terms, all that's done is reduce their household repayments by some 340 rands a month. So, we're starting to see an ease of pressure in terms of the debt repayment. We just saw that the fuel price went on the inland side by some 2 rand 20 a litre. So, there is some relief, but we're not there yet. I think as we look to the easing going into 2025, given the tight correlation of our interest rate with the US, we hope to see some further relief on the interest rates going into 2025, and probably towards the middle of the year, as more of the easing comes to the average consumer, you will see greater suitability of our customers to repay debt, but also greater relief across the value chain as well. So, it's easy starts to the journey, but we're not there yet. There's some pressure, and as you can see in the data, vehicle contract is still happening. In fact, in the NAMSA data, they reported at the end of September that the vehicle sales compared to September a year ago is still some 4% down. It makes the point that even though the easing has started, we're not there yet. Okay, makes sense then why people still have a preference for used vehicles. So, coming to you, George, where your focus is more in the used vehicle space. What, and yeah, I mean, the vehicle prices have hardly moved. We're talking about a 0.6% year-on-year increase in the used vehicle markets versus 4.4% in new vehicles. What is the average vehicle price you're seeing on your platform? And to what extent are secondhand vehicles being financed versus being a cash purchase? So, Namondo, thank you for having us. But the used vehicle average price on AutoTrader's platform is still under 500,000 Rand, closer to 400,000 Rand, in fact. It has been rising over the last couple of years, particularly post the pandemic. But we have seen a contracting as Lee pointed out, of those average used vehicle prices. So, to answer your question, just over 400,000 Rand on average for a used car. That does take into account the higher segment or the more affluent segment as well. And if we strip that out, that average price is a lot lower. And we are seeing single lower digit increases in that average price at the moment versus upper single digits to lower double digits about two to three years ago. And George, do you have a view on to what extent vehicles are being financed? Or are there a lot of cash purchases for secondhand vehicles? Well, I can speak directly to the recent hybrid and EV survey that we did, which is the most recent data that we have. And approximately 60% of consumers will finance a vehicle in the next three years when replacing their car. Sticking on this topic of the EVs, do you, to what extent do we see sort of EV adoption accelerating? Obviously, in other parts of the world, we've seen quite a massive adoption. And we know that locally that's being driven by Gen Zs as they are more environmentally conscious. Is South Africa ready? How fast can we see EV adoption happening? Let's start with you, Lee. Well, it's interesting. I think EV adoption is still nascent in the South African market. We did see an increase in quarter two on EV sales, around 5%. But it's like the earliest days, we will see definitely an increase in the full year 2024 when compared to 2023. But when you ask the question in Georgia Lab, comparable data, I believe from a survey, consumers are looking for a better bang for their buck right now. An EV is still markedly more expensive compared to an equivalent engine based car, or ICE based car. Secondly, a huge concern for consumers is what we call range anxiety. We found on a global level, consumers are looking to have around 4.7 kilometers of range available in their EV before they're able to take it on. There's an anxiety around the lack of public infrastructure. There's a concern around the high premium of taxes that are currently on EVs in South Africa. And as government adopts an EV policy, there's a hope that that will actually change compared to other markets like China, where China for the first time outpaced the global US in terms of Tesla compared to BYD, for example, BYD outpaced Tesla sales on EVs. And in fact, 25% of all cars sold in China in the last year were actually EVs. So there's definitely a move towards EVs globally. But there's some things holding us back to allow the supply value chain to be afforded the grace to have better value in their vehicles and offer that to consumers. And as a consumer, we have the household pressures I spoke about earlier, where you want a cheaper vehicle. In fact, a consumer would tell us very similar to what George has said, that the average vehicle being financed around 400,000 rand, but for them to actually buy an EV vehicle, they want that EV to be less than 750,000 rand. And they're very few in the market right now in that range while concurrently given the range that they want in an EV vehicle. George, your views on EV adoption in South Africa, especially given the price, the price elements, I suppose we're not seeing many of them in the second car space yet. Yeah, so I think there's a couple of things. Firstly, there's a lot of pent up demand. We see that 61% of South Africans have never set foot in an EV or a hybrid vehicle. However, sales are up 78%. And there are large increases, particularly in the sales of hybrid vehicles. The Toyota Corolla Cross Hybrid is dominating the space. And sales are up 426 units January to September this year. Brands like BMW, Volvo, MINI have introduced various variants of electric vehicles as well as hybrids, but hybrids seem to be taking the cake at the moment. And our surveys and studies show that 74% when this is the pent up demand, but 74% of South Africans are considering a hybrid for the next purchase. However, there's a couple of criteria that that hybrid has to be under 500,000 Rand, which the Toyota Corolla Cross meets, the vehicle has to do at least 500 kilometers of range, which a lot of the fully battery electric vehicles at the moment are just achieving. And so there might be a slight lack of demand for EVs as a result, or battery electric vehicles, should I say, as a result of that range anxiety, and then charging infrastructure as Lee rightly pointed out. So I think the Holy Trinity has been solved by the hybrid vehicle and that trinity being range needs to be 500 kilometers, charging infrastructure, consumers want these cars to charge in, believe it or not, two hours, within two hours in their homes, which is a very fast stretch, and be under 500,000 Rand. So all in all, pent up demand. And if the price comes to the right levels, and the range gets to the right levels, I think we will see that transition that we've seen in other parts of the world. Wow, I mean, I know how South Africans love their road trips. I think we're quite stuck on just the range points alone. Before we close this discussion, gentlemen, just wanting to look at innovation and vehicle financing models in South Africa. So we've seen a lot of interesting things happen, happening over the last year, rent to buy models, longer term vehicle rental models. Lee, starting with you, can you tell us, how effective are these in actually addressing consumer affordability for vehicle finance? Well, it's really interesting, because there's actually been a growth in the millennial and the Gen X segments, generally from a vehicle finance perspective. And what that means is that the younger populations, specifically those born after 1981, they want to get mobile access to the job market. And in a country where unemployment is 33.5%, people are anxious to become employed. So they are looking and seeking out ways to do that. So in many cases, the youngsters aren't able to access traditional financing, and they're looking for different models. So rent to buy or, you know, subscription-based services are definitely an option. We're actually seeing an increase in micromobility as well. So on the road, you're seeing, you know, smaller vehicles providing ride-hailing services, not just traditional vehicles, smaller vehicles, like the Bajaj Ute, which is in South Africa, providing different options. So what it's telling us is that people are caring less about how the car looks or how the vehicle looks. But the reality is that we need to get mobile in a population that is very, very unequal when it comes to accessing transport infrastructure. So you'd find that mobility as a service in all its variants, from ride-hailing, to micromobility, to riding bicycles, to carpooling, are all options that the younger population, specifically the youngsters and millennials and Gen Y, they want to access. Some interesting insights in this sector, indeed. That is all we have time for, gentlemen, George and Lee. Thank you once again for your time. That was TransUnion Africa's Chief Executive Officer, Lee Nyker, and George Minney, Chief Executive Officer of Autotrader.

South Africa’s vehicle industry remains under pressure as affordability challenges continue to drive down new vehicle sales. The Q2 2024 vehicle price index published by TransUnion Africa this morning shows shows a 6 per cent decline in new vehicle sales and a 6.1 per cent drop in total vehicles financed from the previous quarter. The report also notes rising EV adoption, driven by younger consumers and innovation in vehicle financing. Joining CNBC Africa for this discussion is Lee Naiker, TransUnion Africa, Chief Executive Officer and George Mienie, Chief Executive Officer of Autotrader.

Shifting gears: Automotive industry sees spending change

South Africa’s vehicle industry remains under pressure as affordability challenges continue to drive down new vehicle sales. 

Shifting gears: Automotive industry sees spending change

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Shifting gears: Automotive industry sees spending change

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