Shaun Harris
TAKING STOCK
The most profitable investment decisions are often contrary, made against the market trend or in the face of prevailing fashion.
At the moment it seems that this thinking can yield value in the vehicle market. It turns out, according to WesBank CE Ronnie Watson, that motor dealers are currently looking for good stock to meet the growing demand for used cars.
“Right now you will get a good price for your car,” he says. “A trade-in will probably earn enough to settle what you still owe on your vehicle and leave you with enough for a decent deposit on a new car.”
Why these favourable conditions for used car sales?
Fashion. It seems that consumers don’t want to take delivery of a new 1999 car when by waiting for less than a month they can have a vehicle registered in the year 2000. So if you don’t mind admitting to driving a 1999 car it seems that now is a good time for a deal.
Isn’t it amazing the effect that fashion can have on perceived value? Equally surprising, though, is Wesbank’s experience with customer arrears. Watson says these have dropped to the lowest level in 10 years, a sign he interprets as people starting to feel relief from the drop in interest rates and applying their disposable income to reducing debt.
If correct, that’s probably the most bullish sign of an improvement in the real economy we’ve had in the past few years.
It’s not only WesBank. Dolf Wright, operations executive at Bankfin, notes the same trend. “Arrears are down, in terms of numbers, to 6% of the book. It used to be in the region of 8% to 9%, so I see it as a very good sign of better economic conditions.”
Wright attributes better payments by clients to lower interest rates, but also believes that lots of the windfall money from the demutualisation of Sanlam and Old Mutual has been used by individuals to retire debt.
Watson notes, however, that the same is not yet true in the corporate vehicle market. “We haven’t seen the improvement there yet. You tend to find a more significant lag in the corporate market, this is confirmed by court records showing judgments and liquidations still on the increase. When a business gets relief from high interest rates there can still be other problems, like finding that the market for your products has vanished.”
It’s encouraging to see signs that ordinary people are starting to recover from last year’s interest rate spike. Conditions for individuals in the vehicle market were certainly very different 18 months ago.
Watson says, however, that the most important thing customers battling to meet vehicle repayments can do is talk to the bank.
“When interest rates went up so rapidly last year WesBank took a decision to nurse customers through the period. It has paid large dividends – by granting extensions and allowing customers to maintain payments at normal levels it created a situation where we both won. We have found that people have since honoured their commitments and that a lot of goodwill has been created.”
The last thing a vehicle finance company wants to do, he says, is repossess a car. It’s not in the interests of the client and the bank does not make money out of repossessions.
“The worst thing a customer can do is suffer in silence. If a person struggling to meet repayments comes and talks to us we can often come to some sort of arrangement to help them get through a difficult period,” Watson says.
Individuals can buy repossessed cars from the banks and might be able to get the vehicles at good prices, but there’s an important warning to heed. Wright says there is no guarantee on repossessed vehicles.
“Often motor dealers buy these cars, and they will sell them on the market with a guarantee after they have checked them out,” he says.
Repossessed vehicles can be viewed at trade centres – the banks will tell you where. After selecting a car a potential buyer has to put in a private tender for the vehicle.
New vehicle sales tend to be a fairly reliable indicator of the state of the economy, and though yet to show a significant improvement, Watson says the wheels industry has been sensing pent-up demand for some time.
“I expect the first quarter of next year to be very bullish for the industry. Bigger demand for used cars and our almost unprecedented low levels of arrears is evidence of this.”
The same basic common sense that applies to repaying a housing loan early is true of vehicle finance, particularly as interest rates for vehicle finance are most often higher than interest on bonds. Typically, a customer with a sound credit record can expect to pay interest on a car of prime plus two or three percent, say an average of about 18%. Putting extra money into your car on a monthly or lump sum basis reduces the interest burden.