By Ashley Lechman
South African motorists who are already drowning in a relentless wave of living cost increases will take another hard hit in August, when petrol and diesel prices will soar once again, despite warnings from economists that consumers have reached the end of their tether.
The announcement by the Department of Mineral Resources and Energy (DMRE) yesterday of another steep jump in the price of all petrol grades (37 cents per litre) has raised concern from all quarters, and with predictions that the cost of diesel and petrol are likely to rise further heading into the second half of 2023, there is no reprieve in sight for consumers. Drivers of diesel vehicles will pay between 71 and 72 cents per litre more, bringing the price up from R19.49 in July to R20.21 per litre. This is mainly due to international price increasing for the period under review. The changes will come into effect from Wednesday, 2 August 2023.
Neil Roets, CEO of Debt Rescue believes that relentless financial pressure is pushing South Africans to a point of no return. His concern is that this latest increase will drive people to unforeseen levels of indebtedness where they cannot afford their debt. This is especially true for motorists: a car is one of the investments that many people cannot do without, providing mobility, convenience and an efficient and safe mode of transport for families in particular.
He says the latest trend that he has noted is that motorists are downgrading their vehicles to more affordable and fuel-efficient cars. “The latest petrol price hike is likely to entrench this trend even further, though there are many more repercussions for households across the country. Food inflation hit record highs in the first quarter of 2023, and embattled consumers are struggling to put enough food on the table. Now there will be even less to go around as they contend with higher transport costs, both private and public,” he warns.
Rainer Gottschick, CEO of retail and rental at Motus reiterates this saying: “We are seeing consumers buying down in the current high inflationary and interest rate environment. Motorists are changing to less premium brands and to lower category vehicles. There is also the extension of the car replacement cycle to 48 months.”
Despite consumers trading down, the demand for pre-owned vehicles remains significantly lower than pre-pandemic levels. This is according to TransUnion Africa chief revenue officer, Stephen de Blanche, who notes that 29,267 used vehicles were financed on average each month in 2022, while this year the figure is 26,161 so far. The decline is a result of a major shortage of quality used vehicles, along with a steep rise in prices. TransUnion’s vehicle pricing index shows that used vehicles are now 9.8% more expensive than a year ago. It is noteworthy that historically, approximately 40% of used vehicles that were financed, were between one and two years old – now only 20% fall into this category.
In the vehicle pricing index report for the first Quarter of 2023, TransUnion said subdued consumer confidence led to hesitancy over long-term agreements and motorists are now also exploring vehicle rentals as an alternative.
Roets says that it isn’t only the petrol price hikes that are driving motorists to downgrade. “The string of interest rate hikes has prompted steady and steep increases in loan instalments, leading to more people defaulting on debt repayment, especially with regard to vehicle financing,” he says. This is evident in the number of vehicle owners defaulting on their car payments in the first Quarter of 2023, which is up by 4% Year-on-Year. “The country is locked into a vicious cycle that can only spell financial disaster for the average South African,” he warns.
“We are seeing more people across the income spectrum defaulting on their debt,” says Roets. “My advice to those who are in a debt trap is to seek help from a registered debt counsellor who can assist you to manage your financial predicament. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” he concludes.
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