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Preowned car sales on the increase

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The latest figures released by WesBank on car finance show an interesting trend towards second-hand cars.

According to Rudolf Mahoney, head of research at WesBank, the ratio of funding for second-hand cars compared with new cars has been rising. A year ago, the bank was financing 1.2 used cars for every one new car purchased, but that figure has risen to 1.34 cars for every new car – a 12% increase.

Mahoney says that over the past year, the number of applications for financing of used cars increased by 20% compared with only a 5% increase in financing for new cars.

Mahoney says price is becoming a major driver of this trend. “Used-car prices are not increasing at the same rate as new, and consumers see the price gap widening between new and used. Motorists are seeing better value for money in used cars, allowing them to buy a car with higher specs.”

The latest TransUnion Vehicle Pricing Index reveals that the price of new cars has increased by about 7.63%, partly due to a weaker rand, which increases the cost of imported cars, while used-car prices have increased well below inflation at about 1.67%.

The cost of keeping a car on the road is also becoming a factor for motorists.

“We are doing a lot of consumer education around the cost of running a car. If you have R5 000 to spend on a new car, you have to include petrol, insurance and running costs into that budget. It cannot all go to the car repayment,” says Mahoney.

Smaller cars are cheaper to run, which is possibly why figures released by the National Association of Automobile Manufacturers of SA reveal that when it comes to new-car sales, people are buying down.

While overall car sales have declined, there has been a 35% increase in sales of cheaper new cars such as the VW Up.

WesBank’s figures also show that motorists who want to buy a new car are extending their repayment period to make the car more affordable. The average car-finance deal sits at around 69 months, or nearly six years.

Based on this repayment period, a new car only breaks even after four years. That means that for the first four years, the motorist owes more on the car than it is worth, so if they face financial difficulty in meeting those repayments, they cannot settle the loan by selling the car.

Despite this breakeven point, WesBank figures show that the average replacement cycle is 36 months, so although the car is worth less than the customer owes, they are selling the car after three years to upgrade. This is creating a cycle of continuous car debt.

“The best strategy is to keep a car until after the finance is paid off. It is then that the car has real value. One can then build up a deposit for another car with less financing constraints,” says Mahoney

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