Used car market suffering less

That's according to Mike von Hone, CEO of TransUnion's Auto Information Solutions division, publisher of the authoritative TransUnion Auto Dealers Guides.

Speaking at today's TransUnion Used Car Forum in Johannesburg, he told delegates that the estimated drop in used vehicle sales this year is around 10%. According to NAAMSA, there has been a 20% drop in new vehicle sales this year.

One result of this is a notable move in favour of used vehicles with the ratio of new-to-used vehicle sales widening from 1:1.1 at this time last year, to 1:1.6 at present

“That means that about one-and-a-half used vehicles are currently being sold for every one new vehicle. In a strong economy, this ratio is usually much closer to 1:1 or even 0.8:1,” he explained.

Despite this stronger showing, analysis of data received by TransUnion from dealers around the country clearly indicates that used vehicle prices have been under pressure - the average retail price of a used vehicle dropped by some R7,000 to around R122,000 this year.

Nevertheless dealer sales figures do not indicate a dramatic shift towards lower priced used vehicles. Indeed, the under-R100,000 portion of total used vehicle sales this year rose by a mere 1% (to 52%) over sales in 2007.

In the new car market, NAAMSA's figures show that the proportion of under-R100,000 vehicles sales declined to 13% from 14% in 2007. However this is still a significant number, particularly considering the fact that under-R100,000 vehicles currently constitute only 3% of all new vehicles available - down from 8% last year.

“Interestingly, despite high fuel prices, our figures also don't indicate a dramatic shift yet towards smaller capacity vehicles in the used market,” he added.

According to von Hone, one of the most dramatic trends to emerge in the used market this year has been a widening gap between Trade and Retail prices as dealers trade more cautiously in the current tough economic conditions. At present, the average difference between the Guide Trade and Retail price is 14.62%.

However, he pointed out that this average can be deceptive as there are significant differences between brands. Deviations from the Guide prices can be as much as 19% for some brands to as little as around 12% for others.

When it comes to evaluating how well used passenger vehicles are retaining their value in the current market, von Hone said as a general rule lower priced cars are maintaining their value better than higher priced cars.

Nevertheless, the increase in the new car inflation - currently around 6% - has slowed the rate of depreciation on all used models in 2008 and is cushioning the used market as new vehicles become less affordable, and the perceived value for money shifts in favour of used vehicles.

“As a result, we expect the used vehicle market will continue to fare relatively better than the new market with used vehicle volumes likely to remain comparatively robust.

“However, margins will continue to remain under pressure with some further limited price compression as consumers remain under financial pressure. This is likely to result in a further extension of the replacement cycle and consumers buying conservatively at lower price levels.

Footnote: TransUnion Auto Information Solutions is South Africa's leading provider of information solutions for the automotive industry. The company was established in 2005 following the merger of motorONLINE (est. 2000), TransUnion HPI (est. 1997) and TransUnion Mead & McGrouther (est. 1960).

Founded in 1968 and headquartered in Chicago, TransUnion employs more than 4,000 employees in more than 30 countries on six continents.