McCarthy boss Brand Pretorius is concerned that the deterioration of vehicle affordability over the past four years is undermining potential growth in domestic sales.

McCarthy Motor Holdings chairman Brand Pretorius is concerned that the deterioration of vehicle affordability over the past four years is undermining potential growth in domestic sales.

New vehicle prices rose by an average of 18 per cent in 2002, which was mainly brought on by the dramatic depreciation in the value of the rand in December 2001. A higher rate of local inflation during 2002 also impacted negatively on the cost base of vehicle manufacturers and importers.

“Unfortunately, 2002 marked the fourth consecutive year during which new vehicle price inflation exceeded the rate of local inflation (CPIX) by a considerable margin,” said Pretorius. “The bottom line of these developments is that a further substantial deterioration in the affordability of new vehicles was experienced during the year.”

Pretorius said that vehicle financing costs and vehicle insurance premiums also increased. “The four consecutive interest rate increases and the continuation of a high rate of vehicle accidents and thefts, were the major contributing factors to new vehicle buyers suffering from a ‘triple whammy’ in 2002,” he said.

Pretorius pointed out that the effect of these increases was clear when looking at a relatively small vehicle that sold for R100 000 in January 2002, but had increased to R118 000 in December the same year. The monthly repayments for this vehicle, excluding insurance, escalated by 28 per cent from R2 046 to R2 614 during the same period, if financed over 54 months on hire purchase.

The McCarthy boss said in the United States new vehicle prices scored 19,9 on Comerica’s Auto Affordability Index, the best level since 1978. This figure is compiled by the US Commerce Department and the Federal Reserve, and is calculated by dividing the total cost of an averagely priced vehicle, by the medium family income per week.

It means that the earnings of an average American family over a 20-week period equals the price of the average new car, including financing cost. But South African families in the Living Style Measurement 10-level (LSM10) category, with an average monthly income of about R13 000, will have to work for more than 70 weeks for their earnings to match the total cost of their new car.

New vehicle prices in South Africa scored 70 on the Auto Affordability Index, while used vehicles logged a more encouraging 38,6. South African data for new vehicles was based on the selling price of a 2002 Toyota Corolla 160i GLE (R144 795), and the used vehicle affordability index on a 2000 Toyota Corolla 160i GLE (R80 000).

“On the positive side, local manufacturers, with the assistance of the government’s Motor Industry Development Plan, have already achieved great success in unlocking the export market and every effort should now be made to release the latent potential in the local market. The key to that is undoubtedly enhanced vehicle affordability to the so-called ‘man in the street’.”

According to Pretorius, vehicle manufacturers, importers and dealers should join forces in addressing this issue. “Possible focal areas could be duty and incentive structures, and innovative vehicle financing schemes,” he added.

He said the recent strengthening of the rand should improve matters and have a positive impact on vehicle affordability over the medium term.

Original article from Car