Prices for used vehicles in South Africa are ballooning, with price inflation outpacing headline CPI by some margin.
While this has caused some industry experts to warn of a possible bubble in the market, used-vehicle marketplace WeBuyCars says that the local market is resilient and not showing signs of collapse.
WeBuyCars owner Transaction Capital has published its annual results for the year ended September 2022, showing massive growth for the used-vehicle group.
WeBuyCars reported core earnings of R762 million for the year, up 41% from 2021, with 130,177 vehicles purchased over the period and 125,812 sold – an increase of 42% and 43%, respectively.
The group also opened five new marketplaces during the year, including the massive 1,400-bay showroom at The Dome in Joburg, taking its total bays to 8,580 – up from 5,807 in 2021 (+48%).
WeBuyCars has also made what it calls an “irreversible” push into e-commerce, driven by demand through the Covid-19 pandemic. Car sales through its e-commerce platform accounted for 27% of all sales (down from 30% in 2021 during lockdown), but numbers were up significantly (28%) to 34,300 vehicles sold.
According to WeBuyCars, the used-car market in South Africa is still the leader in vehicle sales by some margin. With approximately 11.2 million vehicles in circulation in the country, the number of used vehicles is still more than double the number of new vehicles.
New vehicle sales were hampered by supply shortages over the last few years but have since returned to pre-Covid levels, the group said. This will ultimately grow the number of vehicles in the country and benefit vehicle trading, it said.
“The outlook for the used vehicle market in South Africa remains positive. Vehicle ownership remains an aspiration deeply rooted in South African culture, and mobility trends have shown that more people are moving from using public transport and being passengers in personal vehicles to owning their first car,” the group said.
The number of used vehicles traded continues to exceed the number of new vehicles traded by more than two times, consistent with prior years, it said.
However, price inflation remains a concern. AutoTrader CEO George Mienie pointed out earlier this month that the average list price of used cars for sale has increased by 10%, rising from R386,682 in 2021 to R427,290 in 2022.
This data is corroborated by WeBuyCars’ data, which shows that used vehicle price inflation is sitting at 8.3% – up from 4.9% in FY2021. The average vehicle price in the market is sitting at R423,964 in 2022, compared to R389,145 in 2021, it said.
This is in contrast to new vehicle inflation, which is at 3.9%, down from 6.1% in previous years.
Mienie warned that as the new vehicle market returns to normal and supply constraints ease up, used-car prices will likely crumble as new vehicles become a more appealing prospect. He also said that trends in international markets could be a precursor for the direction of the local market.
However, WeBuyCars has a more optimistic view of the situation.
“Unlike the exaggerated used vehicle price increases and subsequent reductions experienced in markets such as the USA over the past year, South Africa’s used vehicle price inflation at the end of Q2 2022 was 8.3%9 year-on-year, up slightly from 7.9%9 in the previous quarter.
“This is significantly lower than the 40.5% average increase of used vehicle prices experienced in the USA between January 2021 and January 2022,” it said.
The group said that used-vehicle prices should stabilise as banks add liquidity to the market through financing and the new vehicle supply constraints of 2021 ease up.
It added that thanks to its high inventory and ability to adjust pricing on the fly, it would be able to reduce the impact of any adverse vehicle price movements.
Looking ahead, the group said that it will continue its expansion plans with strategic launches into Africa, following the launch of a branch in Morocco in 2022.
“In the next 12 months, we plan to pilot further dealerships across South Africa using different operating models that enable market share growth in a cost-efficient manner. New dealerships, although profitable within the first few months of trading, take between 12 to 18 months to achieve efficiencies and stock turn levels in line with established dealerships.
“This growth strategy is augmented by 54 nationwide buying pods, which are capital-light and conveniently located in high-traffic areas such as shopping centres,” it said.
Having reached 12,000 vehicle sales a month during the year, its medium-term goal is to hit 15,000 sales a month. It also plans to further leverage its financing and insurance business and expand its e-commerce platform.
Source- Business Tech