Younger consumers in South Africa are increasingly moving away from traditional vehicle financing methods, opting instead for innovative solutions like subscription services and vehicle-on-demand (VoD) platforms. This shift is largely influenced by economic challenges, including high interest rates and rising fuel prices, which have led to prolonged hesitance among buyers in the automotive market.
According to TransUnion’s latest Vehicle Pricing Index (VPI), new car prices saw an average increase of 4.4% in the second quarter of 2024, while new car sales experienced a decline of 6%. This combination has caused Vehicle Asset Finance (VAF) accounts to drop to 2.1 million—the lowest figure recorded by TransUnion in four years. Despite this downturn, the overall balance of VAF accounts increased by 16%, driven by escalating vehicle prices and high interest rates. These trends indicate that many consumers are either postponing the purchase of new cars or finding modern vehicle prices unaffordable.
Subscription Services: A Flexible Option
As a result of these economic pressures, subscription and VoD models have emerged as viable alternatives for individuals facing financial constraints. Subscription services, such as Toyota’s Kinto One and Avis iLease, allow consumers to use a vehicle for several years without owning it. Through a single monthly payment, customers essentially “rent” a car for an extended duration. This payment is determined by the vehicle’s price, the length of the contract, and the allowed mileage. Many subscription services also include insurance and maintenance in the monthly fee, making them potentially more affordable than traditional financing options.
Vehicle-on-Demand Solutions
On the other hand, VoD services enable users to access vehicles as needed, typically through a smartphone app or website. Customers are charged either a monthly subscription or a usage-based fee to access a fleet of cars available “on demand.” An example of this in South Africa is the “Mini Sharing” program, which catered exclusively to residents of the BlackBrick apartment complex in Sandton, Gauteng. Residents could book an electric Mini Cooper SE hatchback through the dedicated app, using their smartphones as digital keys to access and return the vehicles. The pricing for this service was based on mileage and time spent using the car, covering insurance, electricity, toll fees, and other related costs.
One of the significant advantages of subscription and VoD offerings is the flexibility they provide. Customers can usually cancel their services with minimal notice if their financial situations change, unlike traditional bank financing, which typically locks them into long-term contracts with severe penalties for missed payments.
Conclusion
As South Africans navigate the challenges of high vehicle prices and interest rates, subscription services and VoD platforms are becoming increasingly attractive options for car ownership. These alternatives not only provide flexibility and affordability but also cater to the evolving needs of a new generation of consumers.
