South Africa’s Auto Market Shows Signs of Recovery as Used Vehicle Demand Rises

The latest TransUnion South Africa Vehicle Pricing Index (VPI) for Q4 2024 reveals a cautiously optimistic outlook for the country’s automotive sector, with improving economic conditions encouraging consumer confidence while affordability challenges continue to shape purchasing decisions. Key insights from the report indicate a continued shift towards used vehicles, with financing for pre-owned vehicles outpacing new car financing at a ratio of 1.56 to 1, up from 1.23 in Q4 2023. Meanwhile, new vehicle prices increased by 1.7% due to supply chain constraints and production costs, while used vehicle prices declined by 2.8%, making them a more attractive option for cost-conscious buyers.

Despite these challenges, new vehicle finance agreements grew by 12.7% year-over-year (YoY), with Gen X and Millennials accounting for 67% of new agreements. “South Africa’s automotive sector is navigating a complex landscape, balancing economic improvements with persistent affordability challenges,” says Marcia Mayaba, Sales Vice President, Auto Information Services at TransUnion South Africa. “The demand for used vehicles continues to grow, while we’re also seeing an increasing shift towards alternative financing and ownership models, such as leasing and car subscriptions, particularly among younger consumers.”

Used Vehicles Dominate, While New Car Market Seeks Stability

The Q4 2024 VPI report highlights a strong preference for used vehicles, with financing activity significantly outpacing new vehicle sales. This shift is largely driven by affordability concerns, as inflationary pressures and high vehicle prices continue to impact consumer purchasing decisions. The used-to-new financing ratio increased to 1.56 in Q4 2024, reflecting a clear trend toward more budget-friendly alternatives. At the same time, new vehicle registrations grew by 14.4% YoY, supported by improved economic conditions and rising consumer confidence.

The Future of South Africa’s Auto Market: EV Growth and Digital Financing

Looking ahead, the report highlights the rising potential of electric vehicles (EVs) in South Africa, signalling a significant shift in consumer interest and market dynamics. The country reached a milestone of over 1,000 battery electric vehicle (BEV) sales in 2024, a small but significant step in a market still dominated by petrol and diesel vehicles. While EVs represent a fraction of total sales, the 60% year-over-year growth in hybrid (HEV) and plug-in hybrid (PHEV) sales signals a gradual shift in consumer interest toward more sustainable options. The introduction of more affordable EV models priced under R1 million, such as the BYD Dolphin and Seal, is expected to accelerate adoption in 2025, making EV ownership more accessible to a broader segment of the market. However, affordability remains a key barrier, with high upfront costs and concerns around charging infrastructure limiting mainstream adoption.

“EV adoption in South Africa is gaining momentum, but for this growth to be sustained, industry players must collaborate to make ownership more accessible,” says Mayaba. “With the right financial products, infrastructure expansion, and increased consumer awareness, EVs have the potential to reshape South Africa’s automotive landscape in the years to come.”

Financing Trends and Alternative Ownership Models Gain Momentum

The report also reveals an evolving vehicle financing landscape, with leasing, subscriptions, and rent-to-buy agreements gaining traction as consumers seek more flexible and cost-effective solutions. For the first time, the Q4 2024 VPI report explores the impact of e-Hailing, leasing, and car subscriptions on the South African auto market. While outright vehicle ownership remains dominant, alternative mobility solutions are becoming increasingly relevant. The report indicates that leasing and subscription-based models are particularly appealing to Millennials and Gen Z consumers, who prioritise affordability and flexibility over long-term ownership commitments.

Additionally, e-Hailing continues to serve as a supplementary transport solution rather than a direct competitor to vehicle ownership. According to recent data from inDrive, an international ride-hailing service, 21.1% of South Africans make us of e-hailing services, reflecting the growing popularity of these transportation alternatives. However, the majority of users still aspire to own a vehicle in the long term. To address affordability constraints and credit access challenges, leasing and rent- to-buy options are emerging as viable alternatives, offering consumers flexible solutions that align with their financial situations.

While lower-value finance agreements (under R250,000) declined, a growing share of financed vehicles now falls within the R250,000 to R750,000 range. This shift suggests that while affordability remains a concern, consumers are prioritising flexible financing solutions and adjusting their purchasing behaviour to align with available credit and economic conditions “The traditional model of vehicle ownership is evolving,” adds Mayaba. “While outright ownership remains a key aspiration, younger generations are increasingly exploring flexible mobility solutions that align with their financial realities and lifestyle preferences.”

As South Africa’s automotive sector continues to evolve, the interplay between affordability, alternative financing models, and emerging technologies like EVs will shape its future. While used vehicles remain the preferred choice for many consumers, the growth in digital financing and the introduction of more accessible EV models signal an industry on the brink of transformation. Collaboration among industry players, financial institutions, and policymakers will be key to ensuring sustainable growth and greater accessibility for all consumers. With the right innovations and strategies, the sector is well- positioned to adapt to changing market dynamics and drive long-term success.

Source:https://newsroom.transunion.co.za/south-africas-auto-market-shows-signs-of-recovery-as-used-vehicle-demand-rises/

Suppose you are an Economist working for a company in the Automotive sector and you are conducting an analysis of the Automotive market.

Question 1           (25 Marks)

The used-to-new financing ratio increased to 1.56 in Q4 2024, reflecting a clear trend toward more budget-friendly alternatives. Using graphical analysis, analyse the reasons for increased demand for second-hand cars in South Africa over the last few years.

Question 2             (25 Marks)

The price elasticity of demand for cars is regarded as elastic. Critically discuss the determinants of the price elasticity of demand for cars.

Question 3                  (25 Marks)

The latest TransUnion South Africa Vehicle Pricing Index (VPI) for Q4 2024 reveals a cautiously optimistic outlook for the country’s automotive sector, with improving economic conditions encouraging consumer confidence while affordability challenges continue to shape purchasing decisions. Evaluate the importance of the automotive sector for economic growth and development in South Africa. In your answer, comment on the future opportunities and challenges for growing the automotive sector.

Question 4           (25 Marks)

While EVs represent a fraction of total sales, the 60% year-over-year growth in hybrid (HEV) and plug-in hybrid (PHEV) sales signals a gradual shift in consumer interest toward more sustainable options. Appraise the importance of Electric Vehicles in environmental protection-economic growth trade off in an African country of your choice. In your answer, comment on policies that should be implemented to encourage the adoption of EVs.

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Economics Assignment Answers: Expert Answers on Above Economics Questions

Graphical analysis of increased demand for second-hand cars in South Africa
Demand shift curve: The increased demand for second-hand cars in South Africa would reflect a rightward shift of the demand curve showing increased preference for such cars.
An analysis of the reason for an increase in the demand for second-hand cars in South Africa indicates that it is mainly because of the affordability factor that the South Africans prefer second-hand cars. Along with this, the economic pressure in terms of high inflation also pushes them to consider the second hand car. The easy accessibility to credit in buying second hand cars along with the changing preferences of generation Z population lead to an increase in such demand.
Determinants of price elasticity of demand for cars
The main determinants include the availability of substitutes, luxury versus necessity, durability and the time Horizon as well.
Importance of the Automotive sector for the growth of the South African economy
This sector is highly important as it accounts for creating jobs, positive contribution towards GDP, and future growth opportunities of EV manufacturing and infrastructure. The challenges can be the affordability factor as well as the global supply chain disruptions.
Importance of EV in the environment economy trade-off
The significant impact of EV can be identified from the fact that it will lead to reduced emissions and fossil fuel reliance and it has the opportunity to provide new jobs as well. The challenges can be in the form of high up front cost and limited consumer awareness. The policy recommendations can be to provide tax incentives to the EV buyers and subsidies as well.

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