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Why you can expect car price hikes in 2021 despite stronger rand

New vehicles at a storage depot await delivery to dealer floors. Picture: DENIS DROPPA
New vehicles at a storage depot await delivery to dealer floors. Picture: DENIS DROPPA

Motor companies are quick to hike new-car prices in response to a weakened rand, but are less eager to pass on savings to consumers when the currency strengthens.

New-car prices saw major hikes last year after the rand weakened from R14 to R18.30 to the dollar, at a time when consumers were financially constrained due to the Covid-19 lockdown. To help recover exchange rate deterioration, many motor companies hiked prices by more than 10% in the past 12 months, against SA’s official 2020 inflation rate of 3.3%.

The first quarter of 2021 didn’t start off well for consumers either, with new-vehicle prices rising at nearly three times the inflation rate for the fourth successive quarter, according to the TransUnion SA Vehicle Pricing Index.

A random sample of 30 car models sold in SA shows increases of up to 14.34% between May 2020 and May 2021, with an average of 8.68% (see graph).

Car financier WesBank reports similar trends in finance deals for vehicle purchases. Year on year its new-vehicle finance agreements averaged a deal size of R356,313, up 11.2%. New-car price hikes have pulled used-vehicle values up with them, with WesBank reporting pre-owned deals average R253,537, a year-on-year increase of 10.6%.

Now that the rand has rallied back to under R14/$, and an inflation forecast of 3.0% for 2021, will we see a softening of vehicle price hikes or possibly even price cuts?

Not necessarily. The motor industry hasn’t traditionally reduced prices in response to a strengthened local currency, citing the need to preserve resale values.

Most motor companies (otherwise known as original equipment manufacturers or OEMs) polled by Motor News were non-committal about potential price movements this year, or dodged the question.

Market leader Toyota SA said it takes a long-term view on pricing and takes into account cost pressures from possible exchange rates, commodity prices, inflation, salary increases and the duty impact well in advance. It said it doesn’t react to the temporary vagaries of the exchange rate.

A number of OEMs shared similar views, including Audi, Mercedes-Benz, and Suzuki, who all noted that the exchange rate is not the only factor in setting car prices.

Stellantis (which includes the Opel, Peugeot, Citroen, Fiat, Jeep, and Alfa Romeo brands) was one of the few companies to provide a pricing outlook, expecting to see a level of price inflation in 2021 but not at the same level as last year.

Hyundai Automotive SA says if the rand-dollar exchange rate remains at present levels it expects car price rises of 3%-5%.

A random sampling of 30 new cars showing how their prices have changed in the last 12 months. Source: DUOPORTA
A random sampling of 30 new cars showing how their prices have changed in the last 12 months. Source: DUOPORTA

Honda Motor Southern Africa expects car prices to increase between 7% and 12%, largely dependent on global forex fluctuations and material costs. It said Covid-19 disruptions have added pressure on new vehicle supply for at least the next four to six months with most manufacturers experiencing severe stock shortages that could impact sales volumes and OEM profitability.

Other OEMs were less forthcoming, including BMW SA, which said it doesn’t usually comment on future price changes for competitive reasons. Volkswagen, Ford, Jaguar Land Rover and Kia Motors also declined to comment.

The official list prices of many new vehicles may drop from July, but only because service and maintenance plans will become optional instead of being included in the price, as part of the new Guidelines for Competition in the SA Automotive Aftermarket.  

Price increases have been partially offset by interest rate cuts for consumers buying cars on finance deals — the prime lending rate has reduced to a more than five decade low of 7% — but new cars bought on finance deals still decreased a steep 9% in the fourth quarter of 2020 compared with the same period in 2019, with used-vehicle finance deals down 6.2%.

The price hikes and lockdowns due to the pandemic saw local new-vehicle sales plummet 29.1% to 380,449 units in 2020, compared to 536,612 sales the previous year. With no real price relief expected, it all suggests ongoing hardship for consumers and a motor industry struggling to recover from the financial effects of the Covid-19 pandemic.

NOTE: In the graph there’s no clear trend in price increases between imported and locally-built brands. The increases are industry-wide as every brand is affected by the value of the rand relative to the world’s major currencies, whether in importing fully built-up vehicles, or importing components used in the local assembly of vehicles.

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