A used car market crash is predicted

Since Covid-19 and subsequent stock and chip shortages, the pre-owned market experienced huge demand as buyers bought down, but is it sustainable?

Demand for used cars has driven up prices. The average list price of used cars for sale has increased by 10%, rising from R386 682 in 2021 to R427 290 in 2022.

Comparing AutoTrader data between Q1 and Q3 in 2022 to the same period in 2021 indicates a market that has continued to thrive.

And off the back of strong year-on-year growth, searches and advert views for the above period have grown by 5.64%. Searches are an indicator of popularity, advert views indicate interest in a particular car, while enquiries indicate the car consumers are most likely to buy.

More notably, supply has not kept pace with demand. While the seven cars that sellers get the most enquiries for has remained unchanged, stock levels of these mostly locally built cars have changed dramatically.

Supply of the country’s best selling passenger used car, the locally produced VW Polo Vivo, has halved, while the second biggest drop in supply in used cars has been the BMW 3 series (33%) followed by the locally-built Mercedes-Benz C-Class (17%) and VW Polo (16%), and imported VW Golf (11%).

In contrast, the supply of SA-built used bakkies increased. The Toyota Hilux (the car that receives the most enquiries) increased in supply by 18%, and the Ford Ranger by 3%.

Still, some worrying local and international signs point to a bursting of the used car market bubble.

Locally, rising interest rates and inflation, and spiking fuel prices are likely to dent demand. With the cost of living continuing to rise, consumers are feeling the pinch.

What’s more, while South Africa lags overseas trends, there are worrying indicators emerging abroad, not least of which is a drop in used car price inflation and concerns around the car loan debt market in the US.

So, can we expect demand for used cars to fall in 2023? CEO George Mienie seems to think that if the new supply chain issues, as well as chip shortages for new cars, are sorted out, this could cause increased demand for new cars and put pressure on used car prices as demand falls.

“The used vehicle price inflation bubble is flexing and under the right economic demand and supply conditions, could burst in the next 12 months. As housing costs go up, interest rates increase. Car demand may fall. I always say, if the US or EU sneezes, we get pneumonia,” quips Mienie.

Source: Nikki Chennells

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