Why cars are so expensive in South Africa

Over the past decade, cars have become significantly more expensive in South Africa due to increased subsidies to the local automotive sector, a weaker rand, and increased import duties.

South Africans are increasingly unable to purchase a new car due to the skyrocketing costs of purchasing a vehicle and maintaining one. 

Many point to the elevated interest rates, resulting in higher repayments on car loans and increased balloon payments. 

However, the price of cars, regardless of the repayments, has also risen sharply, contributing significantly to the average South African’s lack of affordability. 

For example, of the 1,481 car models on sale in South Africa, only a quarter are priced below R500,000. 

Chief economist at the Efficient Group, Dawie Roodt, attributes this 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,” Roodt explained. 

Typically, governments engage in protectionism to help a fledgling industry grow in the face of intense external competition.

Proponents of protectionism argue that this enables the establishment of a local manufacturing base and the development of the necessary scale to compete against global competition. 

“We are not told that the moment you protect an industry, the consumer pays a price for that. A protective tariff is nothing but a hidden tax to protect an industry.”

Free trade is vital to increasing consumer choice and driving down prices through competition. Protective tariffs, he said, have the opposite effect. 

Roodt explained that the South African automotive industry is a good example of this, with the government giving 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. In this case, it comes from high import duties on foreign vehicles and additional taxes on vehicle purchases. 

A longer-term driver behind rising car prices is regulations, which vary from market to market but broadly entail the same things.

An example is safety equipment, which is a crucial component of modern cars.

In countries such as South Africa and the European Union, new cars must be equipped with features such as anti-lock brakes, airbags, seatbelts, parking sensors and cameras.

Additionally, consumer expectations have influenced the standard features in modern cars, which now commonly include infotainment touchscreens, air conditioning, cruise control, LED headlights and more.

However, incorporating these features into cars comes at a cost, and they are not inexpensive.

A less obvious trend has also led to increased prices, with one being the sharp rise in popularity of the SUV body type.

Over the last decade, SUVs and their smaller crossover counterparts have become increasingly popular, resulting 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.

South African consumers have adapted by ‘buying down’ and upgrading their car models less frequently. 

This has resulted in a decline in the sale of luxury vehicles over the past decade, with German brands such as Audi, BMW, and Mercedes being particularly hard hit. 

The sale of Audi vehicles, for example, has declined from 18,375 in 2014 to a mere 6,259 in 2023. 

Mercedes-Benz, BMW and BMW-owned Mini have not fared much better, with only Porsche bucking the trend and growing its sales. This is shown in the above graph.

BMW said it is not the only manufacturer affected by the rising cost of living. The overall passenger car market has contracted in the past ten years. 

It explained that, due to the tough economic environment, a new trend of buying down has emerged in the new car market. 

In other words, South Africans can no longer afford premium vehicles and are looking for cheaper alternatives or not buying a new car. 

Combined with increased imported vehicles from Asia, consumers have been spoilt for choice. 

Audi also said that one should look at the decline in sales in the wider premium market and passenger car sales in general. 

Despite the decline in sales, it said it has managed to maintain and, in some years, increase its market share. 

It also explained that some South Africans are waiting longer to upgrade their cars, waiting seven or eight years rather than the typical five years before buying a new car.