An increase in the cost of living at the start of 2022 did not discourage South Africans from buying new vehicles during January.
South Africans were faced with fuel price hikes and another increase in interest rates as the new year started, but that didn’t deter them from buying new vehicles during January.
According to naamsa | the Automotive Business Council, January new vehicle sales increased 19.5% to 41,382 units compared to the start of 2021, creating a solid start to the year and the market’s continued recovery.
“January new vehicle sales kicked off the year at similar levels to the momentum created during the second half of 2021,” says Lebogang Gaoaketse, Head of Marketing and Communications at WesBank, referring to four months of sales in the period exceeding 41,000 units. “While some purchase decisions may have been deferred out of December into the new year, January sales provide a solid start to the year, raising the hopes of manufacturers and dealers for ongoing market improvement.”
While year-on-year comparisons remain difficult to interpret because of differing pandemic circumstances, WesBank remained positive for a continued slow recovery of the market during 2022.
Both passenger cars and light commercial vehicles (LCVs) started the year positively, increasing 26.6% and 3.8% respectively. Dealer sales in the passenger car space out-stripped the overall market, increasing 33.7%, a very positive sign of consumer demand.
Sales into the rental market also indicate an increase in business confidence and a more positive outlook to tourism with sales in the channel up 21% during January.
“While gradual interest rate hikes are inevitable over the course of the year from their record lows, their impact should be considered within purchase decisions and affordability,” says Gaoaketse. “Rising costs of living amidst more slowly recovering earnings are expected to continue placing pressure on household incomes and the wherewithal for consumers to afford new vehicles during 2022. But price inflation in the pre-owned market and necessary replacement cycles some two years after the onset of the pandemic should be expected to fuel demand.”
Stock shortages continued to thwart South Africa’s new vehicle market during October. However, the market continued to show a robust performance, despite the volumes being lower than September.
According to naamsa | the Automotive Business Council, 41,035 new vehicles were sold during October, an increase of 6.1% over the same month last year. Although September sales were the second-best volume month this year, October sales were 4.9% slower than last month. It is also important to note the context of October sales within the four months this year that have sold more than 40,000 units.
“The new vehicle market appears to be recovering strongly, demand out-stripping current supply constraints,” says Lebogang Gaoaketse, Head of Marketing and Communication at WesBank. “The second half of the year has performed strongly since the mid-year lockdown restrictions, with the market trading above 40,000 units a month for the past three months.”
WesBank’s own data indicates a resurgence in the South African motor industry. “While we have seen high demand for pre-owned vehicles over the last two years, a slow shift back towards new vehicles may be currently underway,” says Gaoaketse. “Compared to a year ago, applications for to WesBank for new car deals rose 1.8% during October, while applications for pre-owned deals declined 5.9%. In addition, the bank’s used-to-new ratio has shifted over the 12-month period from 2.25 used vehicles financed for every new vehicle a year ago, to 2.08.”
However, the issue of supply is a global factor that skews the overall market picture. “Until global manufacturing stabilises off the back of the pandemic and resolves its micro-chip shortages, consumer and business purchase decisions will be swayed by availability and necessity,” says Gaoaketse. “The good news is that South African car dealers are in a much more sustainable position than a year ago.”
South Africa’s new passenger car market was up 3.1% to 27,496 units, displaying a robust consistency throughout the year. The Light Commercial Vehicle (LCV) market remains far more volatile. While it was down 10.9% in September, the segment bounced back to increase 15.9% during October to 11,188 sales.
A similar trend played out in the dealer space with passenger car and LCV volumes up 2.7% and 16.5% respectively. The market once again benefited from a sizeable volume of rental sales, with 5,002 passenger cars and 730 LCVs selling into fleets.
“Although the market looks in better shape, affordability continues to be a major consideration,” says Gaoaketse. “Significant fuel price hikes this month and the prospect of interest rates potentially increasing with the return of inflation are factors for consumers to consider when purchasing their next vehicle.”
In the current economic climate, with increased living costs and the stresses of everyday life in lockdown, many consumers are fearful of being turned down when applying for credit.
Whether it’s a house, credit card or a new vehicle, banks are bound by law, through the National Credit Act (NCA), to ensure that consumers can afford the financial commitments into which they enter. While credit should never be used to live beyond one’s means, it can be a necessity – as in the case with financing a car, which is a major financial commitment.
“While there’s no guarantee that a customer’s application will be approved, there are best practices to follow that can improve one’s credit health and greatly increase the chances of being granted credit,” says Lebogang Gaoaketse, WesBank Head of Marketing and Communication.
1. Establish your affordability
The first step in calculating your budget is finding out how much you can afford to spend on a car. To do this, simply take your income (after taxes and deductions) and subtract all your monthly expenses such as food, rent, airtime, subscriptions, insurance and the like. All these costs need to be deducted from your total income to arrive at your disposable income. This is the money that can be used for luxuries, savings or essential credit, such as monthly car instalments.
Carrying out this budget exercise at home gives you a clear picture of how much you can spend on car instalments.
2. These extras aren’t optional
Remember that affording a car isn’t just about settling the monthly instalment. If you have calculated that you have R5 000 to spend on a vehicle after paying all other monthly expenses, you will need to use that amount to cover the instalment as well as other essentials. Fuel and comprehensive insurance cover are examples of ongoing monthly expenses that need to be budgeted for. If your vehicle doesn’t have a service or maintenance plan, you should also consider putting some money aside each month to cover regular maintenance costs.
These items form part of the overall cost of vehicle ownership and should be included in your budget when submitting your finance application. If your budget allows for these costs, you improve your chances of your application being approved for a car loan.WesBank advises allocating between a half and two thirds of your budget to the vehicle instalment, with the remainder allocated to the additional costs. For example, if you only have R5 000 a month to spend on a car, between R2 500 and R3 000 should be used for the instalment repayment, with the remainder going towards fuel, insurance and maintenance costs.
3. Save up for a deposit
If you’ve demonstrated to the bank that you can budget responsibly, you’ll impress them further if you can put down a deposit payment. While it’s not absolutely necessary to pay a deposit, doing so will work in your favour in the long-term. Paying a deposit reduces the amount of credit required for the transaction, which means lower monthly repayments, less interest and improved affordability. Your ability to afford the monthly repayments is one of the biggest drivers when banks assess your finance application.
Financial responsibility also reflects well on your credit profile, which will also go some way to ensuring your finance application will be approved.
4. Settle as many debts as possible
Your credit profile or credit history shows banks how you use credit. This includes clothing accounts, overdrafts, home loans, personal loans and credit cards. As long as you make your monthly payments on these accounts, your credit profile will be spotless and banks will view you as a reliable borrower.
According to the NCA there are two main types of credit agreements. The first is a credit transaction such as a personal loan, which is taken out and paid off, with interest, over a certain period. With each payment, the outstanding balance reduces over the agreed loan period.
The second type of credit agreement is a credit facility such as an overdraft or a credit card. These are revolving facilities with a maximum amount but also require a monthly repayment of an agreed amount.
When applying for credit, the bank takes all your current and available credit into account. For example, if you have a personal loan that you have been paying off for two years, with a balance of R15 000 and instalments of R1 000, these figures are used in assessing your affordability.
If you have credit facilities such as a credit card with a limit of R50 000 and an overdraft with a limit of R25 000, these amounts are also included in the assessment – whether they are fully used or have a zero balance. These facilities remain in place even after your vehicle finance has been approved and if you do use them then your monthly affordability has to include their repayments. For this reason, the NCA requires the bank to take all credit facilities into account.
The best advice here is to have as little debt as possible, which frees up money in your monthly budget. Once you’ve paid off an account, it is a good idea to close it – or lower the total limit for the facility. The fewer credit facilities you have in your name, the better it looks for your credit profile and your future finance applications.
5. Trading in for the best deal in town
Once you’ve completed the budgeting exercise and calculated what you could afford in a vehicle, you’re ready to visit a reputable, WesBank-approved dealership. One other thing to consider if you own a vehicle is trading in your existing car. If you’ve had your current car for more than four years, chances are that its trade-in value will be more than the money you still owe the bank. This means you’ve passed the breakeven point for your vehicle loan. It also means that the money you make from trading in your car can be used as a deposit towards your new vehicle purchase. The same is true if your car is paid off: the money you receive from that trade-in deal can be put down as a substantial deposit on the cost of your new car.
If your vehicle’s trade-in value is less than the amount you owe the bank, it means you have not yet reached the trade-in value. In this scenario, you will either have to keep your existing vehicle for another couple of months, or you could use some of your savings to assist in settling the existing vehicle loan – though that is not ideal.
Of course, having a trade-in where you don’t have to pay in additional money is going to greatly benefit your car loan application.
“The last thing to keep in mind is to be patient and shop around for the best deal. The new vehicle market is very competitive and, with the current low interest rates, manufacturers have some very attractive offers – some that could help you afford a car and others that offer better value. Find a deal that suits your budget and your needs, and use the advice provided to assist you with your next finance application. If you’ve carefully considered your expenses, calculations and affordability range, your application for finance should be approved,” says Gaoaketse.
For many young students and graduates their first introduction to adulting starts when they make a decision to buy their first car. This can be a daunting experience as car ownership involves many additional expenses such as fuel, insurance and maintenance which can all impact monthly budgets and cash flow.
Becoming independently mobile can be an exciting prospect, but buying a car is also a long term commitment so it’s important to understand the economics involved.
These tips from WesBank will help navigate the decision making and buying process and ensure that students and graduates are better equipped in their financial journey:
• Track your income and expenses:
This means understanding exactly how much you make versus how much you spend. Draw up a detailed budget including income and expenses to determine what you can realistically afford to spend on a car. As difficult as it may be, stick to your budget.
Purchasing a vehicle can be stressful for students and graduates, especially because they do not always have a credit history.
• Spend less than you make every month:
A budget is important as it helps to ensure that you spend less than what you make each month. If you do not track your spending, it can be easy to overspend and ultimately end up in a debt situation that’s difficult to overcome.
• Minimise on lifestyle inflation:
Being young often means high pressure to go out and socialise, or buy the most expensive items of clothing and gadgets, instead of sav- ing towards bigger purchases, like a personal vehicle, a house, or saving for emergencies. It’s important to be aware of your entertainment needs, and identify other less expensive means of entertainment. Binge spending once in a while is okay, budget permitting, but be careful not to overdo it through lifestyle pressures. The money that you’re spending on unnecessary items, such as excessive entertainment, is money that you could be using towards something that will make a real difference to your life.
• Start saving early:
One of the most common mistakes any working individual makes is thinking they will only start saving once they start earning a certain amount. Saving is one important financial discipline that should not be put off. Even if you start with a small amount, saving is a lifelong decision which impacts how early you can retire as well as having a go-to ‘piggy bank’ in case of a financially demanding emergency.
Purchasing a vehicle can be stressful for students and graduates, especially because they do not always have a credit history.
For those looking to buy their first car, the WesBank Graduate Finance offering provides graduates with competitive interest rates and credit history is not essential. The entire application process can be accessed and completed online.
Wesbank Graduate Finance is designed for graduates who:
Have a University degree, three-year diploma or NQF 6 qualification
Have graduated within the past three years from date of application
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