Why are cars becoming significantly more expensive in SA?

Over the past decade, cars have become significantly more expensive in South Africa. There are a few main contributing factors. The average South African struggles to afford to purchase a new car due to the high costs of buying and maintaining a vehicle.

ARE INTEREST RATES TO BLAME FOR INCREASE?

Many people give elevated interest rates the blame for the high car prices as it results in higher repayments on car loans and increased balloon payments. However, looking at the prices of cars separate from repayments, the prices have increased significantly.

Of the 1 481 car models on sale in South Africa, only a quarter are priced below R500 000, making affordability a real struggle for many South Africans, according to MyBroadband.

ECONOMIST BLAMES GOVERNMENT SUBSIDIES FOR INCREASE

Chief economist at the Efficient Group, Dawie Roodt, attributes the increase in vehicle prices to the protectionism of the South African government and the subsidies they give the local automotive industry.

“The moment that you protect an industry, you prevent cheaper alternatives from coming to market and competing.”

Dawie Roodt

He said that governments typically engage in protectionism to help a young industry grow in the face of intense external competition. This is to enable the establishment of a local manufacturing base and the development of the necessary scale to compete against global competition.

The South African government gives local manufacturers large tax breaks and subsidies to produce their cars locally. This comes with the cost of the government having to fund this through tax revenue.

Roodt argues, however, that free trade is vital for increasing consumer choice and driving down prices through competition. Protective tariffs, he said, have the opposite effect.

REGULATIONS PLAY A BIG ROLE

Although vehicle regulations vary depending on the market, they are broadly very similar. An example is safety equipment, which is a crucial component of modern cars. In South Africa, for example, it is necessary for new cars to be have anti-lock brakes, airbags, seatbelts, etc.

Apart from regulatory features, consumer expectations also play a role. Many consumers want features such as infotainment touchscreens when purchasing a new car. This is another reason for cars being so expensive lately.

MORE PEOPLE WANT SUVS

Interestingly, over the last decade, SUVs and their smaller crossover counterparts have become increasingly popular. This has resulted in a decline in the demand for more affordable hatchback and sedan styles.

Consequently, several hatchback and sedan models have been discontinued and replaced with new SUV models to meet the changing market demands.

HOW HAVE SOUTH AFRICANS RESPONDED TO THE RISING PRICES OF VEHICLES?

In general, South African consumers have adapted to the increase in car prices by ‘buying down’ and upgrading their car models less frequently.

There has been a significant decline in the sale of luxury vehicles over the past decade. German brands such as Audi, BMW, and Mercedes have been particularly hard hit. The sale of Audi vehicles, for example, has declined from 18 375 in 2014 to 6 259 in 2023.

More South Africans are now looking for cheaper alternatives or not buying a new car. Additionally, South Africans are waiting longer to upgrade their cars than was the case in the past. The past trend of replacing a vehicle every five years, has changed to seven or eight years.