South Africans ditch BMW and Mercedes for Suzuki and cheap Chinese cars

South Africa has seen a notable consumer shift from luxury brands to more budget-friendly options, such as Suzuki and emerging Chinese manufacturers.

Lightstone’s chief analytics officer, Paul-Roux de Kock, said this trend reflects South African consumers’ economic pressures.

“Consumers are increasingly favouring mid-tier vehicles that offer features comparable to premium brands but at a more affordable price point. A basic affordability analysis illustrates the reasons behind this shift,” he said.

The average cost of light commercial and passenger vehicles in South Africa is just under R530,000.

Financing such a vehicle over five years at the current prime interest rate would require a monthly income of around R39,000, based on the general rule that car payments should not exceed 30% of gross income.

However, for most South Africans, this exceeds not only the amount they can afford on a car payment but also their total monthly income.

As of Q2 of 2024, wages in South Africa averaged R27,450 per month, according to Stats SA.

Given that this threshold is significantly beyond what most South Africans earn, the automotive industry has responded in two ways.

First, traditional manufacturers and financial institutions have introduced creative financing options to make monthly payments more affordable.

This includes extended payment terms, balloon payments and guaranteed buyback programs.

Secondly, emerging brands, primarily from China and India, have entered the market and gained traction by selling high volumes of lower-priced models.

This trend is evident in the weighted average price patterns of these brands.

“Brands like Suzuki have successfully focused on budget-friendly models, propelling them to become the third-largest seller of light vehicles in recent years.”

Suzuki has also become an increasingly popular brand in South Africa’s used car market, according to the latest AutoTrader data.

In October, Suzuki gained two spots, finishing as the sixth most-sold model.

The Swift, Suzuki’s popular compact hatchback, has seen impressive growth, with a 41.1% year-on-year increase.

De Kock explained that emerging Chinese automakers have used a similarly strategic approach: launching low-cost models to gain market share quickly, then transitioning to higher-value SUVs as their foothold strengthens.

This approach is evident in pricing trends from brands like GWM and Haval.

“This movement underscores a broader industry trend: a shift from long-established, often more expensive brands to newer, more affordable alternatives in most market segments.”

“While perceived value-for-money varies across different segments, the overall trajectory points towards a growing consumer preference for cost-effective vehicle options.”

“Looked at another way, the rising demand for affordable vehicles is creating new opportunities for manufacturers to enter the market while offering consumers a wider variety of choices.”

Data on vehicle imports versus local production reveals a growing variety in both light commercial vehicles (LCVs) and passenger cars.

Since 1994, vehicle options have steadily increased, with the current growth cycle, which began in 2020, being largely fueled by Chinese brands.

This trend also underscores South Africa’s increasing reliance on imported vehicles, particularly from cost-efficient production hubs like India.

“While these imports provide South African consumers with more affordable vehicle options, they place substantial pressure on the local manufacturing sector and the supporting industries associated with vehicle manufacturing.”

“To mitigate local risks, it is essential to find innovative ways to boost local vehicle production.”

“Achieving this requires the industry to harness data-driven insights to inform government policies and strategies, ensuring that South Africa’s automotive sector remains competitive and resilient amidst global market challenges.”

The call for policy changes within South Africa’s automotive sector offers a balanced approach to addressing affordability and stimulating local industry growth.

According to de Kock, two key policy priorities are under discussion:

• Reducing import duties: Lowering excessive import duties could help alleviate affordability constraints, boosting demand for new vehicle sales in South Africa.
• Promoting local manufacturing: Encouraging the production of affordable electric and hybrid vehicles locally could stimulate growth and position South Africa as a competitive player in the global automotive market.

“Collaboration between the government and the private sector is crucial to addressing key challenges, such as infrastructure deficiencies and export-related barriers, which currently hinder the industry’s growth,” de Kock said.

During the 2024 SA Auto Week, President Cyril Ramaphosa highlighted the importance of strategic policy shifts to ensure long-term success in the industry.

“The president used data to contextualise the industry’s importance – it contributed 5.3% to GDP and, at R270.8 billion, accounted for almost 15% of the country’s exports in 2023, and it created jobs for nearly 500,000 people across the supply chain.”

“More than two-thirds of vehicles produced locally by seven manufacturers were exported to 148 countries around the world.”

Ramaphosa reaffirmed the government’s commitment to supporting the automotive sector by announcing updates to the New Energy Vehicle (NEV) white paper, first released in December 2023.

These updates will focus on enabling the transition to cleaner vehicle technologies, including hybrids and plug-in hybrids, and will introduce subsidies to encourage NEV adoption, de Kock explained.

While specific timelines were not provided, the announcement was met with optimism, signalling a future where electric and hybrid vehicles could become more affordable for South Africans.

The SA Automotive Master Plan to 2035 outlines an ambitious target: increasing local vehicle production to 1.39 million units annually, equating to 1% of global output.

For perspective, South Africa produced 633,332 vehicles in 2023. Meeting this target will require innovative policies and strong collaboration among stakeholders to overcome economic, technological, and infrastructural challenges.

“Achieving this ambitious goal will require not only policy innovations but also strategic collaboration between stakeholders to address the economic, infrastructural, and technological challenges ahead,” de Kock said.