South Africans dumping BMW and Mercedes for Suzuki and Chery

South African consumers are under financial strain and are ditching expensive German cars in favour of cheaper Chinese and East Asian brands. 

Higher interest rates make buying a new car more expensive as the repayments on auto loans have increased.

The country’s middle class has seen an increase in debt levels, which, when coupled with high interest rates, take up a larger portion of their disposable income

“Persistently high interest rates and inflation – especially food inflation – continue to erode consumers’ disposable income, while a lack of meaningful economic growth constrains salaries,” the Q1 2024 Debt Index said. 

This means that many South Africans are struggling to afford new cars or even to finance their current vehicles, according to TransUnion’s latest quarterly overview of consumer credit trends report.

TransUnion reported that the first quarter of 2024 saw a 7.1% decline to 114,000 in the number of loans handed out by credit providers to consumers seeking to finance cars.

The number of vehicle finance accounts in Q1 also dropped by 1.7% to 2.1 million, indicating that more and more consumers are staying out of the car market after paying off their current vehicles.

Simultaneously, delinquency rates on vehicle finance accounts, which are the percentage of past-due loans, increased by 20 basis points to 5.4% in the first quarter of 2024. 

This indicates that a growing number of motorists are struggling to meet their current car payments.

Consequently, the average outstanding balance per account rose by 5.3% to R240,043.

Relatively wealthy South Africans are also feeling the pain. Where it was once the norm for these consumers to buy a new car every five years, this is no longer financially viable. 

This trend is reflected in the country’s declining interest in expensive German cars, which have traditionally been popular in South Africa.

The National Association of Automobile Manufacturers of South Africa (NAAMSA) tracked car sales over the last decade. 

Ten years ago, BMW sold 24,521 cars. That number has declined for the last decade and dropped to 12,881 sales last year.

Mercedes-Benz has also seen a sharp drop in sales over the last decade. The company went from selling 28,993 cars in 2014 to 7,062 cars in 2023. 

Daily Investor contacted Audi, Mercedes-Benz, and BMW to find out why they think their car sales have more than halved in the past decade. 

BMW said that 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, as a result of 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. 

Audi also pointed out 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. 

The rising cost of living has opened the door for cheaper, especially Chinese, cars which have seen tremendous sales growth in South Africa over the last decade. 

Increasing car imports from Asia also means that consumers now have more affordable vehicle options than ever before. 

The buying-down trend can be seen in the strong sales growth from cheaper brands such as Suzuki and Chery. 

Suzuki, in particular, has seen immense growth in the past decade, with sales of their vehicles growing from 6,402 to 47,201. 

Chery has seen similar growth, selling over 16,000 cars last year compared to 1,297 in 2014. 

In May, BusinessTech calculated that the average income earner in South Africa can afford a car priced up to R240,000. 

Currently, only 12 new cars are priced under R240,000 in South Africa. 

Of these 12 cars, 5 were Suzuki-made, and 10 were from Asia. No German cars features on this list. 

This means that for the average South African or the market for a new vehicle, buying an East Asian car may be their only option.