Is SA’s used car market bubble about to burst?

An increased demand for new cars will result in downward pressure on the prices of pre-owned vehicles.

The used car market has thrived in South Africa over the last few years. Picture: iStock

The market for used cars has flourished in recent years. Comparing AutoTrader trading data between Q1 and Q3 in 2022 to the same period in 2021 indicates a market that has continued to thrive.

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

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

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Used cars in demand

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.

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Supply of the country’s best selling passenger used car, the locally produced VW Polo Vivo, has halved.

The second biggest drop in supply in pre-owned vehicles has been the BMW 3 series (33%), followed by the locally-built Mercedes-Benz C-Class (17%), VW Polo (16%) and imported VW Golf (11%).

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

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Pressure on pre-owned prices

Still, some worrying local and international signs point to a possible bursting of the pre-owned 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 United States.

So, can we expect demand for pre-owned cars to fall in 2023? AutoTrader 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 vehicles and put downward pressure on second hand prices as demand falls.

“The pre-owned 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.