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A Honda dealer told me recently that it has not experienced an increase in bank rejections for finance applications and moreover its second-hand dealership had its best December in many years.
Although both comments seem counterintuitive, it is a sign that people are moving to second-hand quality cars and that older buyers still have access to credit.
Marcel de Klerk, managing executive of Absa Vehicle and Asset Finance, confirmed that the bank has had a positive experience when it comes to Honda customers and, as a brand, its owners have the lowest rate on default payments. Honda appeals to the mature market and its efforts to attract the younger market with the Honda Jazz only appealed to the young at heart.
Honda must be thanking its lucky stars because those brands targeting the first-time car buyer are having a far tougher time. De Klerk says there are certain brands that have high arrears experience, but he did not want to specify which brands those are.
He also says financing experience is affected by the relationship between the supplier and the bank. For example, if Absa has a strong relationship with VW, it will get the first bite of the cherry and those applications it turns down will go to the supplier’s second favourite bank. This would affect the overall experience of the bank towards that particular brand.
Buyers are moving to tested brands because they are concerned about resale values and whether the newer brands will survive. This trend is only hastening the demise of less robust makes and models.
With vehicle sales down 25% this year and predictions for 2009 that new vehicle sales will fall to 400 000, we have an overtraded market with 1 300 models to choose from. If divided equally, each model will only sell 300 cars, which is unsustainable.
De Klerk says we can expect consolidation in the market this year and some brands will disappear. “Newer brands will face a slow-down in sales and will have to consolidate or close.”
De Klerk says the new cheap Chinese cars are already having a difficult time. The fact that a strong, well-recognised brand like Honda is doing well in the second-hand market is testament to the fact that people are moving away from buying new cars from lesser known brands towards second-hand cars from tried and tested brands.
“We are seeing this trend especially with bakkies. There is a trend for reliable used vehicles with resale value. Resale value is becoming more important.”
Don’t cancel insurance
Banks have seen an increase in the number of insurance policies that have been cancelled. Absa estimates that only 30% of cars on the road are insured. If you have finance on your car and you are not insured, you could end up with no car and a lot of money owing to the bank. Even if the accident is not your fault, you have a 70% chance that the other driver is not insured and will not be able to pay for your repairs. Rather than cancel your insurance, speak to your insurer and see if there are less expensive policies that provide basic cover at a lower premium.
60 months is best
Absa’s Marcel de Klerk says many car owners are in over their heads because of the change in legislation that allowed consumers to buy a car with no deposit and to pay it off over 72 months. As people’s wallets took strain, along with the rigorous affordability requirements of the National Credit Act, more people moved to the 72-month payment plan to lower monthly payments and meet the affordability test.
Now that they have run into trouble there is no fat in the repayments as no deposit was paid and many of these customers have residual payments of up to 40%, which is more than the car is worth. De Klerk says one should never finance a car over more than 60 months and ideally one should put down a 10% deposit. This will provide for some flexibility if you run into financial difficulty.