Cars priced below R400,000 are driving the growth in SA's new vehicle market

The good times are rolling in South Africa’s new vehicle market, with nine consecutive months of sales growth putting the industry 13.6% ahead of where it was this time last year, Naamsa figures show.

June was a particularly strong month for the motor trade, with year-on-year sales growing by 18.7% to 47,294 units, as both passenger cars and light commercial vehicles made solid gains of 21.7% and 14.9% respectively.

But household budgets remain tight and much of the growth is currently concentrated at the lower end of the vehicle market.

“The majority of the growth we’re seeing is centred in the sub-R400,000 segment,” said Brandon Cohen, chairperson of the National Automobile Dealers’ Association (NADA). “This price point remains critical for volume, affordability and trade-ins, with a direct knock-on effect on pre-owned sales performance,” 

He added that the used vehicle market was also benefiting from improved affordability metrics, driven by softened interest rates, favourable vehicle pricing, and the rollout of the two-pot retirement savings reform.

Most telling is that 24 of the 30 best-selling new passenger vehicles in South Africa last month (see IOL's top 50 list here) have a starting price of below R400,000.

In fact, four of the five top-sellers, namely the Volkswagen Polo Vivo, Chery Tiggo 4 Pro, Suzuki Swift, and Hyundai Grand i10, all have starting prices of less than R300,000.

Many buyers continue to face budget constraints, said Lebo Gaoaketse, marketing head of WesBank, and at a finance level this is being seen through longer contract terms and lower credit amounts.

"These are two major indicators of affordability pressure to reduce monthly installments within the need for new replacement vehicles,” Gaoaketse added. “In short: South Africans want new cars – but they’re spending less on them.”

According to late-2024 data from TransUnion, the average loan amount on a new car in South Africa is currently R401,000.

Yet, regardless of how much South Africans are spending, it seems evident that lower interest rates have had a positive effect on new vehicle sales.

“South Africa’s new vehicle market growth has an uncanny alignment to the start of interest rate cuts,” Gaoaketse added.

“Interest rate reprieve since September 2024 has lifted some burden on indebted consumers and stimulated demand for credit and consequently new vehicles. The South African Reserve Bank has lowered rates 0,75% over the past nine months but may become more cautious with further cuts given global economic turmoil.”

Absa’s new vehicle application figures show a 13% year-on-year increase in June compared to the same period last year.

“The decreasing interest rate and the stable inflation rate have provided a welcome boost to consumers. As a result, consumers pay less on home loan and other debt instalments, increasing their ability to purchase new cars,” said Henry Botha, strategy executive at Absa Vehicle Finance.

IOL Motoring