2014 car sales may be down 5%

© Tomasz Zajda – za.fotolia.com

With new-vehicle prices and interest rates both expected to rise‚ financial institutions say they expect a strong swing towards used cars in the next few years.

Standard Bank's Head of Secured Lending‚ Steven Barker‚ said that inflation‚ exchange rates and rising fuel prices contributed to a steady rise in the cost of vehicle ownership. He said South Africa's unbroken record of negative savings since 2005 - where consumers have spent more than they earned for nearly a decade - was unsustainable.

With individual buyers‚ rather than fleets and companies‚ accounting for 71% of new-car sales in South Africa‚ a continuing effect on the market was inevitable.

Although average household debt‚ as a percentage of disposable income‚ had fallen to about 74% from its 2009 peak of more than 80%‚ this was still too high.

Debt levels already too high

"How can consumers take on more debt?" he asked. "Most already have nothing in reserve to see them through a tough spot."

Barker was speaking at a Standard Bank roundtable debate on the state of South Africa's vehicle market.

Steven Barker says new car sales are likely to fall but used car sales will probably increase this year. Image: Car Insurance

Vehicle and Asset Finance Head Nicholas Nkosi said debt levels were forcing consumers to consider more extreme ways to buy new cars. Some banks‚ having said they would not consider finance periods beyond 72 months‚ were now regularly writing agreements over 84 months.

Lack of ready cash meant fewer customers were providing up-front deposits. Instead‚ the trend was towards residual and balloon payments‚ which often saddled buyers with significant debt at the end of the finance period.

Barker acknowledged that many consumers did not understand what they were getting themselves into when they asked for these options‚ which was why so many were turned down.

"With banks and vehicle manufacturers promising finance decisions within an hour of a consumer entering a showroom‚ how do we empower the consumer when he doesn't know he needs help?" Barker asked

Nkosi said banks could go only so far in educating customers. He said he expected the market to restrain new-car price increases to an average 6% for this year in an effort to minimise sales losses. "This is considerably lower than most pricing forecasts and a number of brands have already raised prices by more than 10%," he said.

However‚ he said companies had to be conscious of the threat from the used car market‚ which was gaining groundnow that new prices were accelerating. "We will see the pre-owned market grow over time. You also have to consider that a new car loses value overnight. A used one doesn't," Nkosi said.