Despite the recession‚ now might be the best time to buy a new car

20 July 2017 - 10:39 By Wendy Knowler
Buying new rather than used car is the more financially savvy choice right now as car price increases have slowed dramatically in the past year, says Wendy Knowler. File photo.
Buying new rather than used car is the more financially savvy choice right now as car price increases have slowed dramatically in the past year, says Wendy Knowler. File photo.
Image: AFP Relaxnews ©AFP PHOTO / TOBIAS SCHWARZ

This may not seem like a wise time to buy a brand-new car‚ but if you’re toying with the idea‚ the numbers suggest that the timing couldn’t be more perfect.

Buying new rather than used is the more financially savvy choice right now as car price increases have slowed dramatically in the past year and many manufacturers - desperate to boost flagging new car sales - are offering recession-hit consumers massive incentives in the form of discounts‚ hefty trade-in assistance and favourable repayment terms‚ says Derick de Vries‚ CEO of TransUnion Auto Information Solutions (AIS).

“Meanwhile‚ because the recession has led more consumers to buy used cars‚ the increased demand has pushed prices up‚ closing the price gap between new and used cars‚” de Vries said.

Especially when the value of the full manufacturer warranty and service plan are factored in. The company’s Vehicle Price Index (VPI) report focuses on the year-on-year increase in vehicle pricing for new and used cars‚ drawing data from passenger vehicles in the stables of 15 motor manufacturers.

It’s those figures that the industry relies on to determine the trade-in and retail prices of used cars.

TransUnion’s second-quarter (Q2) 2017 report shows that‚ while the VPI for new passenger vehicles dropped from 8.4% in Q2 last year to 5.4% in Q2 this year‚ the VPI for used vehicles went up from 2.7% to 3.6% over the same period.

“These results suggest that used cars aren’t necessarily as affordable as they were a year ago‚ while new cars are becoming more reasonably priced‚” de Vries said.

Due to the deflation in GDP South Africa experienced in the first quarter of 2017‚ the swing to used cars was dramatic‚ he said.

“In fact‚ total financial agreement volumes between manufacturers and dealers for new cars dropped by a sharp 14% between Q1 and Q2‚ in anticipation of the period of slow sales on new cars ahead.”

In a bid to arrest the trend‚ many manufacturers have now gone to great lengths to put together sweet deals.

“If you go onto the major manufacturers’ websites‚ you’ll see amazing deals such as R50,000 trade-in assistance; offers we weren’t seeing three months ago‚” de Vries said.

“We don’t know how long they will be able to sustain those deals‚ so now would be a good time to do the deal if you’re thinking about buying a new car.”

De Vries predicted a sharp increase in the sale of new vehicles in the coming months‚ along with a “marginal” decrease in used car sales as the quality of available cars diminished.

For the past six quarters‚ consumers have been faced with price increases at a rate well above that of the Consumer Pricing Index (CPI)‚ but the latest VPI was “a promising end to this trend”‚ de Vries said.

“Despite the recent political and economic uncertainty gripping the country‚ interest rates have remained fairly stable and the rand is performing surprisingly well. And while there’s no telling what could change over the next few months or years‚ those consumers who manage to secure a fixed – rather than linked – interest rate when financing their new cars should be in a better future financial position.”

• TransUnion AIS’s data only relates to financed vehicles‚ which account for about 45% of all vehicle sales in SA.

Contact Wendy: consumer@knowler.co.za or on Twitter: @wendyknowler

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