Used market gains momentum as new car sales slump

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Sales in all vehicle segments declined. Passenger car sales totaled 34,936, a year-on-year decline of 6.1%. Light Commercial Vehicle (LCV) sales declined 8.3% during the same period, with sales of 12,074 vehicles.

Vehicle sales through the dealer channel declined 12.6%, year-on-year, and government sales saw a 27.4% decline for the same reporting period. In contrast, sales to the rental market saw massive growth 49.6% in January 2016.

Declining sales reflects economy

"The decline in new vehicle sales comes as no surprise in the current economic climate. Consumer budgets are being pummeled by inflation on all fronts as well as interest rate hikes," said Simphiwe Nghona, CEO of Motor Division at WesBank. "The spike in rental sales is an anomaly. This is most likely due to rental companies choosing to re-fleet ahead of new car price increases. Despite this positive activity in the rental market, total industry sales still saw a decline."

WesBank's data for January 2016 shows that 70% of all applications received were for used vehicles, with 30% of applicants looking to buy new. New vehicle finance application volumes declined 6.4%, year-on-year, while growth of 2.8% was seen in used car finance applications.

Affordability a key factor

WesBank expects a continued shift to the used market throughout this year, as cash-strapped and budget-conscious consumers look for affordability in the pre-owned space. Affordability will remain a key factor among car-buyers who will be more conscious of interest rate hikes. Despite massive declines in the international oil price consumers are unable to enjoy lower fuel prices due to the poor performance of the Rand.

"The start of the year's new vehicle sales mirrors the turmoil in the economy. Consumer and business confidence levels are low, and those who are spending money are moving to the used market," said Nghona. "With interest rates set to increase even further, during the course of the year, we have observed more customers opting for fixed interest rates, currently 55% of all transactions are done on a fixed interest rate, compared to 49% in January 2015."