1.9 million people qualify for car financing but do not use it

1.9 million people in South Africa qualify for car financing, but do not use it because they can simply not afford it. No wonder that the demand for new vehicles is also falling.

There are approximately 12 million registered motor vehicles in South Africa, but when you exclude light and heavy delivery trucks, taxis and motorcycles, fewer than one in five adults have a personal vehicle. There are roughly 8 million motor cars and station wagons, as measured by eNaTIS, but not all are owned by private individuals.

Decline in new passenger vehicle sales in SA

According to Naamsa, new passenger vehicle sales have been declining, with 2023 showing 347 695 units sold, a decrease of 4.4% compared to 2022 when 363 692 units were sold, a difference of nearly 16 000 cars. The trend continued into 2024, with year-to-date new passenger vehicle sales in June down by nearly 7% compared to a year ago.

Eighty20, a South African consumer insights and data science firm, provides interesting insights into the decline in passenger vehicle sales. The analysis includes various sources and highlights how sales have been impacted by:

• The state of the economy and shrinking disposable income
• Inflation (and supply chain issues) adding to the cost of new cars
• The cost of borrowing for vehicle asset finance (VAF)
• Alternative transport options.

The MAPS, a nationally representative survey of 20 000 people conducted by the MRF, as well as the General Household Survey, and a Statistics SA survey of 21 000 households, found that roughly 30% of households own a working vehicle.

New car demand shrinks

The average household income for car owners is R33 000 (and R20 000 personal income) per month. However, for those who bought a model built in the past two years, household incomes averaged around R47 000. With only 16% of households nationally earning R30 000 or more, the demand for new vehicles is shrinking, Andrew Fulton, director at Eighty20, says.

For high earners who qualify for vehicle asset finance, the cost of borrowing has surged over the past three years, he says. Since mid-2021, there have been 10 consecutive interest rate hikes, increasing the prime lending rate from 7% to 11.75% in 18 months. Where it currently sits for the past few months.

To illustrate the impact on a new car buyer, Fulton says, consider one of South Africa’s most popular vehicles, the Toyota Hilux, which sold over 3 300 units last year. Someone who bought the new 2.8 GD-6 RB Legend X-Cab model for R574 900 in 2021 on a 72-month lease with no deposit and no balloon payment would have had monthly instalments of around R10 500. But by early 2023, those monthly payments would have increased by nearly R1 200.

Vehicle inflation makes new cars unaffordable for many

He points out that for many consumers, vehicle inflation also made new cars unaffordable. The Hilux in the previous example currently retails for R701 800, which is about R125 000 (22%) more than in 2021.

“This requires a monthly instalment of more than R14 000 per month. In fact, Top Auto recently found that 73% of all new cars in South Africa cost over half a million rand, requiring a minimum of R10 000 per month financing). This is one reason why the number of people with vehicle asset finance (1.9 million), has not increased since 2019.”

Fulton says this trend significantly affected the middle class, who hold around 30% of all car loans. “Over the past two years, their loan balances steadily decreased, with a notable decline of 100 000 individuals holding car loans in this segment.

“Due to inflation and economic conditions, South African car owners are either holding on to their vehicles for longer or opting for cheaper used cars.”

Aging vehicles on South African roads

According to Lightstone data, over 42% of vehicles on South Africa’s roads are between 11 and 20 years old. In 2022, the average age of passenger vehicles was estimated at 10.5 years, an increase from the average of 9.33 years seen in 2014 and 2015.

In April 2024, there were 21 608 new passenger vehicle registrations and 75 594 used vehicle registrations. A year earlier, these numbers were 23 524 for new and 77 171 for used cars. While vehicle registrations can vary month to month, new car registrations decreased by 8%, whereas used car registrations only declined by 2%.

These factors contributed to the rise of companies like We Buy Cars, Weelee, GetWorth and Carzuka, outspending each other on billboard ads in Johannesburg. Additionally, Fulton says, this trend boosted alternatives to car ownership such as leasing, rent-to-buy models or switching to e-hailing services such as Uber and Bolt.

Rising e-hailing use and changing car buying habits

According to MAPS, the percentage of people claiming to use e-hailing services doubled between 2022 and May 2024.

“An interesting trend is that too many South African motorists are, in fact, still buying vehicles that are too expensive in relation to what they should spend monthly on mobility.  Therefore, consumer behaviour will eventually undergo a major shift away from lengthy onerous instalment sale-based purchases to shorter term lease options,” says Deolinda Da Costa, head of marketing and communications at Mazda Southern Africa.

One silver lining in all this could mean shorter commute times and less traffic. According to TomTom’s Traffic Index, it takes Capetonians an average of 13 minutes and 20 seconds to travel 10 km within the Cape Town Metro area. This lengthy commute, coupled with an average of 48 hours per year spent sitting in rush hour traffic, means Cape Town beats Johannesburg as the most congested city in South Africa.

“Rising vehicle costs, coupled with fuel prices which have doubled since 2020, makes car ownership even more of a privilege. For example, a Hilux driver who had a monthly diesel bill of R1 800 in 2020 now spends R3 700 per month to drive the same distance,” Fulton points out.

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