Steep Inflation Could Drive Car Prices Up By 80%



In the next three years, car prices could rise by as much as 84% if the current rapid rise in inflation and rand depreciation persists, cautions WesBank CEO Chris de Kock

Speaking at the Car of the Year dinner earlier this week, Chris de Kock outlined several scenarios, which were supported by economists across the country, that could play out over the following three years that would significantly impact the price of cars.

According to an IOL Motoring report, one scenario – by far the worst picture to emerge and supported by 22% of economists – is that the global economy will face protracted weakness and as a consequence the South African economy would likely continue to see low growth and even slip into a recession.

Under these circumstances, the rand-dollar exchange rate is estimated to stand at R22,90, and the price of a car could escalate by 84% by 2019 – an entry-level Toyota Etios, currently retailing at about R145 000, could cost you a whopping R265 000, for example.

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Another scenario, supported by 39% of economists and referred to as core expectations, caters for a credit downgrade to junk status; the rand rallying at around R17,20 to the dollar by 2019; slow GDP growth; and for interest rates to increase by 125 basis points. All this translates to a 39% rise in the price of cars.

In keeping with the example above, the same Etios would cost about R200 000.

The more positive scenario, supported by 13% of economists, is one in which policymakers have made a concerted effort to encapsulate fiscal consolidation and structural changes that will promote economic growth in the country.

In this scenario, the rand improves marginally from its current levels and the country regains its economic footing, and inflation moderates to normal.

WesBank forecasts new-car sales to fall by 12% this year in anticipation of the country’s sovereign credit rating likely being downgraded to junk status.

“The movement of the rand will be key to the performance of new-vehicle sales in South Africa,” says De Kock. “A deteriorating currency will force manufacturers to increase prices more aggressively.”

“This will push new-vehicle price inflation well outside that of headline consumer price inflation (CPI), thus sending more buyers to the used-car market,” he adds. “Interest rates will also play an important role in affordability and the demand for credit as has historically been the case.”

The weak rand and inflation aside, the price of cars is also being driven by rising import duties, which account for a substantial portion of the final price consumers are being forced to pay.

And Finance Minister Pravin Gordhan’s recent announcement that carbon emission taxes will finally be implemented in the country this year is yet another factor to consider in terms of escalating car prices.

source: Destinyman

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