Second Hand
Cars in South Africa to lead the best way out of
recession
The worst appears to be over. Used Car dealers could
very well undergone a torrid time in the past 18
months can expect things to improve as the year
progresses, with the
Second Hand
Cars at the forefront expected improved sales
volumes within the coming months would enable the
battered dealer market to restore profitable growth
and rebuild their balance sheets, provided Used Car
Dealers managed the anticipated uptick without
incurring additional overheads.
This optimistic evaluation of trends inside the used
and new car markets on data used from information on
almost 12-million vehicles obtained from
manufacturers, importers and distributors of over
100 vehicle marques, combined with 53 financial
providers and 35 000 dealer submissions received
each month.
Substantial increase in finance registrations
Indications associated with a turnaround in the
Second Hand
Cars, underscored by the fact that statistics
for brand new car sales just for the first two
months of 2010 were 18,% ahead of the corresponding
two months in 2009, was based on increasing volumes
of vehicle finance registrations data for both new
and used Cars.
Together, new and used vehicle finance registrations
increased by 29% year-on-year in January, and 10%
year-on-year in February.
Used vehicle financing registrations alone were up
18% and 15% documented in first couple of months of
2010 respectively.
Expectation is that this trend will continue
depending on the possibility that that although
consumers are remaining cautious, the benefits of
stabilised affordability are beginning be felt.
Basically, consumers may very well managed to hold
their heads above water during the worst of the
crisis should soon start taking advantage of the
lower interest rates; the fact that new car
inflation is starting to decline while used car
inflation remains flat at zero percent; the slightly
improved availability of bank credit; and the point
that consumers appear to have paid down their
existing debt therefore their appetite for incurring
new debt is returning slowly
'Value Gap' widens
Expectations this build-up of latent demand will
initially be mostly evident in the used market with
consumers opting for Second Hand Cars instead of new
vehicles according to both affordability and value
considerations.
Value Gap widened between new and used cars inside
18 months to mid 2009, as new vehicle prices rose
plus the value of used vehicles fell. This
divergence appears to be have made used vehicles
relatively more desirable due to a value-for-money
perspective.
Lately, however, this gap has begun to close because
the supply of excellent, low mileage, used vehicles
has long been tight. Nevertheless, it's expected the
significance gap to keep for the foreseeable future,
although the pendulum will swing back towards new
eventually.
Inside the used market, expectation of highest
demand - and a slight appreciation in prices - for
cars inside the R50 000 to R150 000 segment.
Future trends into 2010
However, the shortage of good quality, low-mileage,
affordable used cars probably will bring about yet
another narrowing within the ratio between new and
used sales. This ratio has been on the downward
track since November, after hitting a healthy of 2.4
(one new to 2.4 used cars) in June. The ratio fell
to 2.1 in November and further to 1.83 in February.
Given our present-day price difference between new
and used cars, the ratio of used to new sales could
be higher if the method of getting quality used cars
improved.
Anticipation that availability of quality used cars
would improve following the FIFA World Cup as a
result of rental de-fleeting, the market could
easily absorb these additional units.
While January and February's new car sales were
being supported by rental purchases pre-World Cup -
rental purchases accounted for 15% of February's new
passenger sales and 12% in January - the rental
companies were unlikely to increase the size of
their fleets dramatically for this soccer showpiece.
Latest media reports suggest that fewer
international visitors were expected than had
originally been anticipated.
With domestic business travel, which generally
accounts for the majority within the domestic rental
market likely to end up significantly curtailed
throughout the World Cup, rental companies would
largely have capacity to deal with soccer tourists
without significantly increasing the size of their
fleets.
It is obvious that they may downsize their fleets
following the World Cup, ameliorating the present
stock shortage somewhat. The impact on used prices,
however, might be negligible.
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