Car Loans Devour More Household Income as Sales Soar

South Africa’s New Vehicle Market Surges, But Affordability Concerns Grow

South Africa\’s new vehicle market is experiencing a significant upswing, with sales reaching a 10-year high in September. This growth has been accompanied by a sharp increase in vehicle finance applications, which have risen by 65% over the past decade. While these developments are positive indicators of economic confidence, they also reveal an underlying concern about household affordability.

According to ABSA, monthly vehicle instalments now account for 16.1% of the average household income in South Africa, compared to 14.3% just a few years ago. These figures were highlighted at the recent SA Auto Week, hosted by Naamsa, where the finance institution expressed concerns that vehicle prices continue to rise faster than income levels. This trend persists despite the increasing presence of imported brands from China and India, which offer high-value products at competitive prices.

The average new vehicle finance amount in South Africa, based on the latest available data, stands at R401,000. When financed over 72 months with a 10% deposit and at the prime interest rate of 10.5%, the theoretical average monthly payment for a South African household is R6,876. This figure underscores the financial burden that vehicle ownership places on many households.

Lebo Gaoaketse, marketing head at WesBank, emphasized that household budgets remain under pressure, and affordability continues to be a key factor in purchase decisions. He noted that demand for new cars is at unprecedented levels. Although sales volumes are similar to those seen 10 years ago, the number of finance applications has increased by 28%. This growth occurred even though the repo rate was lower—6%—in 2015.

“It is interesting to note the shifts in the market from 10 years ago within a similar volume,” said Gaoaketse. “In a slightly lower interest rate environment, much more disposable income provided consumers the opportunity to replace their vehicles more frequently. South Africa’s new vehicle market is selling similar volumes in an environment where consumers are holding onto their cars for longer. That must be a positive sign for future growth,” he added.

ABSA has observed a divergence between sales and financing trends. While Naamsa reported a year-on-year growth of 21% for the new vehicle market, ABSA noted a shift in market dynamics. The difference lies in the mix of new and used vehicles. Finance contracts for new vehicles surged by 24%, surpassing Naamsa’s measures, while those for used vehicles grew by 11%. This suggests a gradual shift in the market, with used cars still dominating but new models beginning to gain traction, especially among younger, aspirational buyers.

Charl Potgieter, managing executive for vehicle and asset finance at ABSA, explained this change. “This indicates a shifting balance in the market, where used cars remain dominant, but new models are beginning to gain ground, particularly among younger, aspirational buyers,” he said.

Brand dynamics are also evolving in South Africa. Chinese and Korean brands are making rapid inroads, especially among female buyers and those aged 35 to 45. Meanwhile, German brands are losing market share. This shift reflects changing consumer preferences and the growing appeal of more affordable, value-driven options.

As the market continues to evolve, it remains crucial for both consumers and industry stakeholders to monitor these trends. While the surge in new vehicle sales and finance applications signals a strong economy, the rising cost of vehicle ownership highlights the need for careful financial planning and sustainable purchasing practices.