During the first three months of this year, the South African new car market’s sales have increased by 4,1% to 163 092 units when compared to the same period last year. This is despite tough economic conditions, with the South African Reserve Bank expecting gross domestic price (GDP) to grow by only 2, 7% during 2013.
Sydney Soundy, head of Vehicle and Asset Finance at Standard Bank, said the prosperity within the market is notable when compared to other sectors, which were feeling the brunt of reduced consumer spending and the cost pressure caused by higher inflation and fuel prices, among other factors.
“Consumers seem to be taking advantage of the low interest rate environment and clearly still have an appetite for secured credit,” said Soundy.
Who are the main buyers?
Soundy added that the majority of people applying for vehicle finance are between the ages of 18 and 45, constituting 62.4% of the market. These consumers display the highest level of awareness about technical changes to vehicles taking place in the industry, the brand offerings available, the legislation and the financial offerings available to buyers.
Manufacturers have reacted to this sector of the market by ensuring that their offerings are competitively priced and offer the features demanded.
The need for economical cars
“About 65% of consumers are purchasing cars that cost less than R200 000. Toyota, Hyundai and Volkswagen are some of the manufacturers that have met the need for buying economical vehicles, capturing 50% of the new car market in this segment,” said Soundy.
Consumers have been addressing the monthly affordability of repayments for their vehicles of choice in different ways, including through financing vehicles over a longer period, using the Residual Value option on their finance deals, and varying the extent of deposits offered.
According to Trevor Browse, managing executive of Nedbank’s Motor Finance Corporation, the benefits of taking out a residual value (preferably after a deposit has been put down to ensure there is some healthy equity in the loan-to-value initially) is that it reduces the monthly instalment and allows the car owner to afford warranties, tyre protection, better insurance, service and maintenance plans. This ultimately results in obtaining better resale values at the end of the loan's life.
In the first quarter of this year, Standard Bank also reported an increase in the number of vehicle finance applications. However the percentage of applications with deposits has declined, with more consumers seeking to finance vehicles without a deposit.
According to Browse the percentage of applications with deposits declined as the National Credit Act relaxed the rules around mandatory deposits in 2008, and made them voluntary.
What to consider when buying a car
Despite the decline in applicants with deposits, WesBank spokesperson, Rudolf Mahoney, says it is not a good trend. He advises consumers to save up for a deposit before purchasing a car as this will decrease your installments.
Also as far as possible try to avoid opting for balloon payments as it usually comes at a higher interest rate.
Take advantage of low interest rates by opting for a fixed rate contract when buying a car as your repayments won’t increase should the interest rate go up again.