/ 7 April 2011

Cheaper cars are becoming more popular

According to a release by Wesbank, although car sales have shot up by 25,7%, the trend is definitely towards less expensive cars.

Chris de Kock, executive head of sales and marketing at WesBank, says statistics for the first quarter of 2011 show a 25% increase in the rand value of cars financed, while the actual number of cars financed rose 47%. “This shows a clear buy-down trend in the market.”

According to the latest WesBank book figures, the company has also noted a 6% decrease in actual deal size over the past six months.

This is simply an issue of affordability. With consumers under pressure financially — including high debt levels, petrol price increases almost every month and the threat of higher interest rates later this year — people are not splashing out on top-of-the-range models.

De Kock says mobility costs have been rising. Mobility costs include all expenditure associated with the running of a vehicle, such as monthly vehicle repayments, maintenance and parts, insurance premiums and petrol costs. “The total monthly cost of keeping an entry-level vehicle on the road is about R4 465, when compared with R7 376 for a mid-level vehicle.”

We have also seen an increase in the number of affordable entry-level models that have been launched, providing consumers with more choice in this end of the market.

“Affordability remains the key driver in the ability of consumers to obtain finance, particularly in the lower and middle market,” says De Kock

“During the first few months of 2011, we have already seen a rise in the petrol price, from R8,73 per litre of 95 unleaded in January to the R9,96 per litre that was recently announced. This is expected to increase further during the year in the wake of the turmoil in the Middle East.”

He says consumers’ current purchasing behaviour may also be cautious of the potential for interest-rate hikes later in the year. “While we are currently enjoying the lowest interest rates for more than 30 years, many economists are predicting at least a half-a-percent rate hike by the end of 2011, with more to follow in 2012. With a large percentage of South Africans financing at least a portion of their car purchases, rate hikes could have a major impact on affordability down the line.”

De Kock says that while WesBank remains positive for 2011, the company expects the buying down trend will continue during the year.

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