Shifting gears: Automotive industry sees spending change

South Africa's vehicle industry is grappling with affordability challenges that continue to impact new vehicle sales, according to the Q2 2024 vehicle price index published by TransUnion Africa. The report reveals a 6% decline in new vehicle sales and a 6.1% drop in total vehicles financed from the previous quarter. Despite the easing factors such as inflation and interest rates and the resolution of some supply chain disruptions post-pandemic, consumers are yet to experience a significant decrease in new vehicle prices. Lee Naiker, TransUnion Africa's Chief Executive Officer, mentioned that while there have been some minor reliefs in terms of household repayments, there is still pressure in the market. The recent interest rate cut and fuel price adjustments have provided some respite, but a substantial decrease in vehicle prices is not expected until 2025. Naiker predicts that as the interest rates further ease and consumer debt becomes more manageable, the industry could see a shift in affordability by the middle of 2025. George Mienie, Chief Executive Officer of Autotrader, shed light on the used vehicle market, where prices have seen a mere 0.6% year-on-year increase compared to new vehicles' 4.4% hike. The average price for a used car on Autotrader's platform hovers around 400,000 Rand. Mienie emphasized that approximately 60% of consumers opt for financing when purchasing a vehicle. The preference for used vehicles and the demand for financing options indicate the ongoing affordability pressures in the market. The conversation also delved into the rising adoption of electric vehicles (EVs), primarily driven by younger consumers more environmentally conscious. However, the EV market in South Africa is still nascent, with challenges such as high prices and concerns about range anxiety and charging infrastructure hindering widespread adoption. Naiker highlighted the disparity between local and global EV trends, citing China's remarkable shift towards EVs as a benchmark for potential growth. Wrapping up the discussion, both Naiker and Mienie emphasized the role of innovative vehicle financing models like rent-to-buy and subscription-based services in enhancing consumer affordability and addressing the evolving mobility needs of the market. Overall, the South African vehicle industry is undergoing a period of transition, marked by shifting consumer spending habits and a growing inclination towards more sustainable transport solutions. The road ahead involves overcoming affordability hurdles, promoting EV adoption, and embracing innovative financing models to cater to evolving consumer demands.