South Africa’s automotive market is facing a complex economic landscape with notable shifts in consumer behavior, vehicle financing trends, and growing interest in electric vehicles (EVs). TransUnion’s Q2 2024 Vehicle Pricing Index (VPI) reflects these trends, as consumers increasingly lean toward used cars over new ones, driven by rising affordability concerns and the need for adaptable financing solutions. This report examines how the automotive industry is evolving to address these economic challenges.
Decline in New Vehicle Sales and Financing
New vehicle sales in South Africa declined by 6% in Q2 2024 compared to the previous quarter, and total vehicle financing also fell by 6.1%, according to the latest VPI from TransUnion. This downturn is a continuation of declining vehicle asset finance (VAF) accounts over the past five quarters, leaving active VAF accounts at a four-year low of 2.1 million. Although the industry faces challenges, consumer confidence shows modest improvement, and there is a rising preference for used vehicles.
Rising Demand for Used Vehicles
The used-to-new car financing ratio rose from 1.15 in Q1 2024 to 1.44 in Q2, indicating that for every new vehicle financed, 1.44 used vehicles were financed. Used car prices grew by only 0.6% year-over-year, significantly below the general inflation rate of 5.2%, while new vehicle prices increased by 4.4%. This trend reflects consumers’ growing focus on affordability, making used cars a more attractive option.
Marcia Mayaba, Vice President of Auto Information Services at TransUnion South Africa, observed that high interest rates are affecting new car sales, especially among cost-conscious buyers. “The economic environment is challenging, but the industry is innovating to address consumer affordability,” she noted, highlighting efforts to adapt to changing financial demands.
Financial Pressures and Affordability Solutions
The average loan value for financed vehicles rose to R400,000 in Q2, up from R391,000 in Q1. Only 17% of active VAF accounts finance vehicles priced below R200,000, while 55% cover vehicles priced above R300,000, reflecting higher vehicle costs and loan values. Though new VAF accounts are declining, the overall VAF account balance grew by 16% due to rising interest rates and vehicle prices. Despite these pressures, delinquency rates remain stable, suggesting that consumers are managing existing debts well.
Mayaba emphasized the need for flexible financing models to support financially strained consumers. Options such as subscription-based models, vehicle-on-demand services, and financing solutions tailored for low-income buyers could help boost new vehicle sales and make the market more accessible.
Shifts in Demographics and Digital-First Financing
The automotive finance landscape is also seeing a shift in consumer demographics. Gen Z (born between 1997 and 2012) accounted for 10.9% of new VAF agreements in Q2 2024, up from 7.9% in the previous year. Conversely, Baby Boomers’ share dropped to 7%. Millennials (born between 1981 and 1996) lead with 40% of vehicle purchases, but Gen Z’s growing presence signals rising demand for flexible, digital-first financing options and more sustainable vehicle choices, including electric vehicles.
Potential Growth in Electric Vehicle Adoption
EV adoption remains low in South Africa, but interest is expected to grow, especially among younger, environmentally conscious consumers. While EVs still make up a small share of total vehicle sales, advances in battery technology, a broader charging network, and potential government incentives could accelerate growth.
“The shift toward EVs is inevitable,” Mayaba commented. “With improvements in charging infrastructure and more affordable EV models, younger generations are likely to drive demand for sustainable options.” To meet this anticipated demand, TransUnion suggests financing models that are tailored to younger buyers and designed to support EV adoption.
Innovation and Industry Resilience
The South African automotive industry is navigating through considerable challenges, but it is also innovating to meet changing consumer needs. Adapting to economic constraints through new financing options and embracing EV technology are seen as essential strategies for growth.
“Fostering financial inclusion, offering flexible financing, and supporting sustainable transportation will be key for the industry’s future,” Mayaba added. By staying responsive to consumer needs and embracing technological advances, the South African auto sector is positioning itself for long-term resilience and growth.
Conclusion
South Africa’s automotive market is adapting to economic pressures through innovation and a consumer-focused approach. Shifts in financing, a preference for used vehicles, and the rising interest in EVs point toward an evolving market with diverse growth opportunities. Emphasizing affordability, sustainability, and inclusivity, the industry aims to meet the demands of a changing consumer base and foster resilience in challenging times.
