Used Car market in South Africa to lead the path through recession
The worst is apparently over. Used Car dealers who’ve been through a torrid time in the past 18 months can expect things to improve while the year progresses, whilst used car market at the forefront expected improved sales volumes in the coming months would enable the battered dealer market to restore profitable growth and rebuild their balance sheets, provided Used Car Dealers managed the anticipated uptick without incurring additional overheads.
This optimistic evaluation of trends in the new and used car markets on data drawn from information on almost 12-million vehicles from manufacturers, importers and distributors of over 100 vehicle marques, in addition to 53 financial providers and 35 000 dealer submissions received every month.
Substantial increase in finance registrations
Indications of a turnaround in the Used Car market, underscored by the fact that statistics for new car sales relating to the first two months of 2010 were 18,% in front of the corresponding two months during the past year, was based on increasing volumes of vehicle finance registrations data for both used and new Cars.
Together, new and used vehicle finance registrations improved by 29% year-on-year in January, and 10% year-on-year in February.
Used vehicle financing registrations alone were up 18% and 15% in the first two months of 2010 respectively.
Expectation is that this trend will continue based on the possibility that that although consumers are remaining cautious, the advantages of stabilised affordability are beginning be felt.
For example, consumers who definitely have managed to hold their heads above water through the worst of the crisis should soon start taking advantage of the lower interest rates; the fact that new car inflation is starting to decline while used car inflation remains flat at zero percent; the slightly improved availability of bank credit; and the belief that consumers appear to have paid down their existing debt and for that reason their appetite for incurring new debt is returning slowly
‘Value Gap’ widens
Expectations this build-up of latent demand will initially be mostly evident within the used market with consumers choosing used as an alternative to new vehicles according to both affordability and value considerations.
Value Gap widened between new and used cars inside 18 months to mid 2009, as new vehicle prices rose plus the equity used vehicles fell. This divergence appears to have made used vehicles relatively more desirable coming from a value-for-money perspective.
Recently, however, this gap has begun to close as the supply of high quality, low mileage, used vehicles may be tight. Nevertheless, it’s expected the significance gap to remain to the foreseeable future, even though the pendulum will swing back towards new eventually.
Inside the used market, expectation of highest demand – and a slight appreciation in prices – for cars inside the R50 000 to R150 000 segment.
Future trends leading to 2010
However, the shortage of good quality, low-mileage, affordable used cars is likely to bring about a further narrowing within the ratio between used and new sales. This ratio has been on the downward track since November, after hitting a high of 2.4 (one new to 2.4 used cars) in June. The ratio fell to 2.1 in November and further to 1.83 in February.
Given the current price difference between new and used cars, the number of used to new sales could be higher if the method of getting quality used cars improved.
Anticipation that the availability of quality used cars would improve after the FIFA World Cup because of rental de-fleeting, this marketplace could easily absorb these additional units.
While January and February’s new car sales had been held by rental purchases pre-World Cup – rental purchases taken into account 15% of February’s new passenger sales and 12% in January – the rental companies were unlikely to boost the size of their fleets dramatically for this soccer showpiece.
Latest media reports suggest that fewer international visitors were expected than had originally been anticipated.
With domestic business travel, which generally makes up about most of the domestic rental market probably be significantly curtailed through the World Cup, rental companies would largely possess the capacity to deal with soccer tourists without significantly increasing the size of their fleets.
There is no doubt that they will downsize their fleets following the World Cup, ameliorating the current stock shortage somewhat. The effect on used prices, however, is likely to be negligible.
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