Demand boosts used car prices

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Used vehicle price inflation continues to rise, a study released on Monday showed.

According to consultancy TransUnion's Vehicle Pricing Index (VPI), the first-quarter trend of falling new vehicle price inflation and rising used vehicle price inflation continued into the second quarter of 2010.

The index showed that the rate of new vehicle price inflation this year declined further from 7.4% in the first quarter of 2010 to 3.9% in the second quarter of the year.

This continued fall, said the VPI, reflected the fact that despite increases implemented by major manufacturers, the quantum was often less than 2%.

The consultancy's CEO Mike von Höne said the modest increases could be attributed to continued rand strength as well as a desire by manufacturers to support the improving new vehicle sales figures.

"While new vehicle price inflation continues to fall, used vehicle price inflation is sustaining its upward trend on the back of continued relative strength in demand for used vehicles over new vehicles," Von Höne said.

The absolute level of used vehicle price inflation increased to 5.6% in the second quarter, from 4.5% in the first quarter.

"Data received from TransUnion's dealer returns process indicate that dealers are beginning to carry more stock of used vehicles again as the overall sentiment in the vehicle market continues to improve," Von Höne said.

Meanwhile, the ratio of used to new vehicle finance agreements had come down from its high of 2.4 to one last year to its current ratio of 1.73 used cars to one new.

The present ratio is still substantially in favour of used vehicles, Von Höne said.

"Interestingly, the absolute level of used vehicle price inflation is higher than the absolute level of new car price inflation for the first time in five years (since March 2005)."

He said this might be an indication that the relative value gap between new and used cars was closing fast.

"The question is: are these the first concrete signs that the momentum in favour of new vehicles is building again?"

Von Höne remained optimistic that the outlook for the rest of 2010 would remain positive, with no dramatic changes expected from the current trend.