There was a 6% decline in new vehicle sales and a 6,1% drop in total vehicles financed in the second quarter of the year compared to the previous quarter, according to the latest Vehicle Pricing Index (VPI) from TransUnion.
Despite this, the market is showing signs of resilience, with a slight increase in consumer confidence and positive trends in generational shifts toward vehicle financing. The used-to-new ratio of financed vehicles moved to 1.44, up from the 1.15 of Q1 2024.
This indicates a growing consumer preference for used vehicles. This preference comes at a time when used vehicle prices have risen by just 0,6% year-over-year (YoY), well below the rate of inflation. Over the same period, new vehicle prices rose by 4,4%, suggesting the market is under strain and that affordability remains a priority.
The Vehicle Asset Finance (VAF) sector saw a contraction on both a YoY and quarter-over-quarter (QoQ) basis in Q2 2024, marking the fifth consecutive quarter of YoY decline in new VAF accounts.
The total number of active VAF accounts from Q2 2020 to Q2 2024 stagnated to 2,1-million. Even so, the total balance of VAF accounts grew by 16%, driven by higher interest rates and the overall value of financed vehicles. The growth driven by the low-interest-rate environment has effectively been erased with new accounts unable to gain traction. This places additional pressure on the automotive industry to attract new financing customers and stimulate demand – particularly for new vehicles.
“Although the economic environment remains tough, the automotive sector is showing innovation in addressing consumer affordability concerns,” says Marcia Mayaba, sales vice-president: Auto Information Services at TransUnion South Africa. “The vehicle financing landscape is evolving, with growing interest from younger generations who are reshaping the market through their preference for flexible financing models and electric vehicles.”
Affordability and inclusion key to reviving vehicle financing
The FNB/BER Consumer Confidence Index (CCI) rose five points in the previous quarter to -5, its highest level since the first half of 2019. This was largely driven by reduced power outages and lower fuel prices. However, with the index still in negative territory, consumers remained cautious during the quarter amidst concerns about sustained high interest rates and the local elections.
In Q2 2024, the average loan value for financed vehicles rose slightly to R400 000 (up from R391 000 in Q1 2024) reflecting the ongoing financial pressures on consumers. The number of new VAF accounts has dropped to its lowest point since Q2 2020 highlighting the enduring effects of ongoing economic challenges.
Despite the contraction in vehicle financing, delinquency rates have remained consistent.
This stability suggests that, although fewer new accounts are being opened, those within the system are maintaining their repayments – reflecting the sector’s resilience in managing defaults even as it navigates a challenging economic environment.
“Affordability remains a major concern, but there is an opportunity to foster financial inclusion by expanding product offerings,” says Mayaba. “Subscription models, vehicle-on-demand services, and tailored financing solutions for low-income consumers could help reverse the decline in new VAF accounts.”
A generational shift
In Q2 2024, consumer behaviours continued to evolve as economic conditions shaped purchasing decisions. A key trend was the rising influence of Gen Z (people born between 1997 to 2012) whose share of new VAF agreements grew from 7,9% in Q2 2023 to 10,9% in Q2 2024. Meanwhile, Baby Boomers’ (people born between 1955 to 1964) share dropped from 8,3% to 7%, reflecting a generational shift in vehicle financing.
Millennials (people born between 1981 to 1996) continued to dominate the market, accounting for 40% of new vehicle purchases. The growing influence of younger generations signals a shift toward more flexible, digital-first financing options and sales of electric vehicles (EVs) gradually gaining traction as sustainability becomes a central concern for younger buyers.
The road to EV adoption
Looking ahead, the report highlights the growing potential of EVs in South Africa. While EV sales still represent a small percentage of total vehicle sales there is optimism about future growth, especially as global trends indicate a shift toward more sustainable transportation options.
“The adoption of EVs is inevitable, particularly as younger, environmentally-conscious consumers drive demand,” says Mayaba. “While the initial uptake has been slow due to higher costs and limited infrastructure improvements in battery technology, the expansion of charging networks, and potential government incentives are set to accelerate this shift.”
Comparisons to markets like Europe and China – where EV adoption is rapidly increasing – highlight the room for growth in South Africa. For this to happen, more affordable EV models must be made available. Furthermore, financing options tailored for the younger generation will be essential to help push EV sales forward.
“Increased focus on sustainable transportation, coupled with expanding infrastructure and growing consumer awareness, positions EVs as a key component of South Africa’s automotive future,” says Mayaba.
Innovation ahead
The South African automotive market continues to face significant challenges, but the future offers opportunities for growth through innovation.
“The focus should be on adapting to changing consumer preferences, leveraging the rise of EV technology, and offering more flexible financial solutions,” Mayaba says. “These strategies will be essential for the industry’s long-term sustainability and growth.
“The Q2 2024 VPI highlights the need for all industry players to be more adaptable at a time when fostering economic empowerment and financial inclusion are critical to gaining momentum in an evolving market.”