High fuel price forcing many to downgrade their cars

The high fuel price is forcing consumers to downgrade their cars, as they are already drown in a relentless wave of living cost increases.

The steep jump in the price of all petrol grades (37 cents per litre) has raised concern from all quarters. And with predictions that the cost of diesel and petrol are likely to rise further heading into the second half of 2023, there is no relief in sight for consumers.

Drivers of diesel vehicles will pay between 71 and 72 cents per litre more, bringing the price up from R19.49 in July to R20.21 per litre, mainly due to international price increasing for the period under review.

Neil Roets, CEO of Debt Rescue, believes constant financial pressure is pushing South Africans to a point of no return. His concern is the latest increase will drive people to unforeseen levels of indebtedness where they cannot afford their debt.

“This is especially true for motorists. A car is one of the investments that many people cannot do without, providing mobility, convenience and an efficient and safe mode of transport for families in particular.” 

He said motorists are downgrading their vehicles to more affordable and fuel-efficient cars.

“The latest petrol price hike is likely to entrench this trend even further, though there are many more repercussions for households across the country.”

Food inflation hit record highs in the first quarter of 2023, and embattled consumers are struggling to put enough food on the table. Now there will be even less to go around as they contend with higher transport costs, Roets warns.

ALSO READ: Fuel price set to rocket in August: Here’s what you might pay at the pumps from next week

Consumers downgrade cars due to high fuel price

Rainer Gottschick, CEO of retail and rental at Motus, agrees.

“We are seeing consumers buying down in the current high inflationary and interest rate environment. Motorists are changing to less premium brands and to lower category vehicles. There is also the extension of the car replacement cycle to 48 months.” 

Despite consumers trading down, the demand for pre-owned vehicles remains significantly lower than pre-pandemic levels according to TransUnion Africa chief revenue officer, Stephen de Blanche. De Blanche said 29 267 used vehicles were financed on average each month in 2022, while this year the figure is 26 161 so far. 

The decline is a result of a major shortage of quality used vehicles, along with a steep increase in prices. TransUnion’s vehicle pricing index shows used vehicles are now 9.8% more expensive than a year ago. It is noteworthy that, historically, approximately 40% of used vehicles that were financed, were between one and two years old. Now only 20% fall into this category.

In the vehicle pricing index report for the first Quarter of 2023, TransUnion said subdued consumer confidence led to hesitancy over long-term agreements and motorists are now also exploring vehicle rentals as an alternative.

Roets said it is not only the petrol price hikes that are driving motorists to downgrade.

“The string of interest rate hikes has prompted steady and steep increases in loan instalments, leading to more people defaulting on debt repayment, especially regarding vehicle financing,” he said.

This is evident in the number of vehicle owners defaulting on their car payments in the first quarter of 2023, which is up by 4% compared to a year ago.

“The country is locked into a vicious cycle that can only spell financial disaster for the average South African,” he warned.