New car inflation hits five-year low - TransUnion

TransUnion Auto CEO Mike von Hone warned that should the recent Rand weakness persist, the declining trend in new car price inflation could reverse in the last quarter of this year or early in 2012.

"This could put further pressure on new passenger vehicle sales that have been slowing this year. Current industry expectations are that the increase in the number of new passenger vehicles sold is unlikely to top 10% for the remainder of 2011 - down from highs of over 25% earlier this year," von Hone said.

The TransUnion VPI is published quarterly and measures the year-on-year price inflation of a market-weighted basket of new and used vehicles. The current baskets are set to change in the next quarter to reflect the significant number of derivatives that are undergoing facelifts or complete make-overs.

Meanwhile, challenges in the used car market continued in the quarter. These were fuelled by the continued pressure on new car prices, coupled with significant new vehicle discounts and favourable financing schemes. Many of the financing options for the most recent quarter included extended repayment periods and prime or below-prime interest rate for these units.

"The introduction of a significant number of affordable new models also makes it more difficult for the used market to compete," von Hone added.

New car pressure on the used market was reflected in the fact that the new to used ratio, as recorded through TransUnion's vehicle financing register, remains virtually unchanged at 1.64 used cars for every new vehicle financed in the July - September period.

Nevertheless, the VPI put used car inflation at 3.8% for the quarter, its highest level this year, but still lower than last year's annual figure of 4.4%.

"Lower trade data reported to TransUnion reflected the reluctance of consumers to pay current ticket prices on used vehicles as well as the ongoing shortage of clean, good used stock of one-to-three year old models. The majority of used vehicles purchased by consumers are priced between R80 000 to R160 000.

"Unless new car inflation turns, pressure on the used market is likely to continue for the foreseeable future," von Hone concluded.