South Africa shifts gears on new and used cars

The car industry is booming in South Africa. In fact, according to Research and Markets, South Africa has the largest vehicle marketing by sales and exports in Africa. However, while sales of new and used cars have recovered to pre-pandemic levels in 2021, workshop revenue is still not quite what it was in 2019.

Thankfully, things are looking up. A substantial 18,7% of the value added within the domestic manufacturing sector was derived from the manufacture of vehicles and automotive components, thereby maintaining the industry's position as a key player in South Africa's industrialisation landscape. And what about used cars? Well, year on year the numbers keep climbing.

What is covered in this article?

• We explore what the demand is for new and used cars in South Africa
• New cars – If you want to buy a new car, we unpack everything you need to know
• If you want to trade in your old car, we explore the important aspects you need to know
• We take a closer look at car insurance – and how to find affordable car insurance in South Africa – for new and used cars

CURRENT DEMAND LANDSCAPE OF NEW AND USED CARS IN SOUTH AFRICA

South Africa's new vehicle market bravely continues to grow year on year. According to the most recent report from Naamsa, the National Association of Automobile Manufacturers of South Africa, April's new vehicle sales increased to over 37 000 units  ̶  a growth of 4,3 per cent compared to April last year.

Naamsa’s 2021 report shows even more encouraging year-on-year sales figures as the new car market recovers. The number of vehicles sold by manufacturers in South Africa increased by 22,1% from 2020 to 464 122 in 2021. In fact, the first half of 2022 saw encouraging increases as the industry continues to recover. However, the impact of the KwaZulu-Natal floods, as well as the Russia-Ukraine conflict’s impact on European exports, has left its mark on the first half of 2022’s figures.

“In 2021, more than 637 million total searches were conducted on AutoTrader, a record high, representing a growth of 28% year on year,” says AutoTrader CEO George Mienie in their report. “This translates into over 20 consumer searches per second.”

BUYING A NEW CAR: EVERYTHING YOU NEED TO KNOW

How to get the best deal. For most of us, buying a new car is the second-biggest purchase (after buying a home) we'll ever make, so it's something we want to do well. Here are five things to do to ensure your new car is the best fit for you:

• Put on your thinking cap. Like it or not, we all make decisions with our emotions (feeling brain), and then justify it with our logic (thinking brain). To go into your new car negotiations with your eyes open, you need to be strategic. Make a list of what you need, not what you desire. For example, if your daily commute is far, you need a car that is fuel efficient and kind to the planet. You also have to bear your budget in mind ̶  and we don’t just mean your monthly repayments.
• Do your research. The best way to negotiate the best deal is to know your prices before getting attached to a new car. You can even request written estimates from other dealerships as a negotiation tool. You might find better bargains as dealerships approach their financial year-end and want to move older stock, or as salespeople try to hit their annual targets.
• Credit or cash. Ideally, buying a new car cash is always the better deal. However, not everyone is that cash-flush. When researching vehicle financing options, look for one with the shortest payment term and the lowest interest rate. While you might pay slightly more every month, you save in the long run. If possible, put down a deposit of 10 - 20 per cent and pay for upgrades and warranties in cash to save down the road.
• Leverage your old car. Selling your old car shouldn’t be too difficult if you’ve kept it in good repair. You can either sell it or use it as a trade-in.
• Get affordable car insurance. Be aware that your car insurance payments on your new car will probably not be the same as that for your old car. Look for the most affordable car insurance that still covers your new car sufficiently in the event of an accident or claim. There are four types of car insurance options to consider, which will be explained in further detail in this article.

What are balloon payments?

A balloon payment is a bulk payment that you make at the end of your car loan. While it keeps monthly repayment costs more affordable and attractive, a balloon payment commitment can become a challenge in the event of an accident.

If your car has been written off, stolen or hi-jacked, and it is insured only for market value, you will end up owing the bank a lot of money, which you probably don’t have. So, you’re paying for a car that you’re not driving.

Thankfully, there is insurance that helps with that risk. In fact, not only can it cover the risk of balloon payment obligations in the event of theft or an accident, but you can also even get top-up credit or credit shortfall insurance for when you’re in a financial crisis. So, you can enjoy your new car without financial stress or ballooning anxiety.

TRADING IN YOUR CAR: EVERYTHING YOU NEED TO KNOW

How to get the best deal

Want to trade in your old car? These trusted tips will ensure you get the most for your trade-in:

• Do your homework. Know what your make and model of car is worth by researching online car retailers and a few local dealerships.
• Set the stage. Property agents' ‘stage’ a home to improve the odds of a sale. Do the same with your car by investing in professional cleaning and repairing the nicks and scratches that appear over time. Also, show your service history records to create trust and show responsibility.
• Bank on success. ‘Banking’ your trade-in is a term used in the car industry, which means you settle on the price of your old car first, before negotiating the new car’s price. Don’t mention you’re interested in a car on the dealer’s showroom floor until you’re satisfied with the trade-in value offered. This will mitigate the risk of them offering you more for your trade-in, and then raising the price of the new car to make up for it.
• No desperados. There are many ‘tricks of the trade’ that car salespeople employ to close the deal. Time pressure is one of them, with limited offers and ‘freebies’ being at the forefront. Don’t approach the negotiations desperate for a conclusion. Walk away if you must, until you are happy with the offer.
• Know your budget. Dealerships often only reveal the monthly repayments costs of the car you are interested in buying. Bear in mind that the longer you pay, the more you pay. Know your budget and stick to it. There’s an old rule of thumb you can use as a guide to calculate your car’s running costs: If your car loan is R3 000 per month, then budget another R3 000 per month for petrol, maintenance and car insurance.

The hidden costs of trading in your car

While trading in your car gives you a financial step up to buy a newer car, there are hidden costs that car salespeople often fail to tell you about.

• The rising cost of spare parts. The pandemic has created a massive shortage of raw materials and inventory of car parts. Supply and demand discrepancies mean there may be an increase of up to 60% in the price of spare parts. Tyre prices have also increased in the last few months. These rising costs need to be factored into the running costs of your car.
• Keeping up with fuel. South Africans do not need to be reminded of the steady hike in petrol prices. External factors such as the ongoing war in the Ukraine, supply chain disruptions, and fluctuations in the value of the rand, mean this needs to be budgeted into monthly costs when considering a new car.
• On-the-road fees. These fees refer to the expenses the dealership will add to your invoice to cover licensing fees, number plates, servicing, etc.
• Car insurance. Your car insurance value might change if your new car’s market value is higher than that of your trade-in. Get an online car insurance quote https://www.santam.co.za/web-quote.

What is the difference between the retail and market value of a car?

Retail value. A car's retail value (which is typically the higher of the two values) is the average price a car dealer would charge to sell it. Simply put, it is the average price that a dealer would sell a car for – new or old - considering its age, condition, and mileage. What this means from a car insurance point of view is that if your car is written off in an accident or stolen, your insurance company will pay out the car’s retail value. This will make it easy for you to replace it with a similar make and model. 

Reasonable market value. It is essential for short-term insurers to standardise how it equates the “reasonable market value” of vehicles since this can vary from vehicle to vehicle. For example, Santam’s comprehensive car insurance pays you the reasonable market value of your car. This means Santam uses the retail value of the car as its base, but then also factors in odometer readings, the condition of the car, as well as any extra items and accessories added to the car to give a more reasonable value. This makes it easier for you to replace your car if it is damaged or stolen.

Whether you want to make your car work better for longer, want to use it as a trade-in for your next car, or simply want to save on insurance, these practical tips will help you keep your car in ship shape, even if you’re working from home:

1. Service regularly, even if your car is parked for long stretches of the day or week.
2. Use your gears, not your handbrake, while parking.
3. Avoid flat batteries and tyres.
4. Protect the paintwork by parking under cover or in a garage, wherever possible.
5. Hit the road. This recharges your car’s battery, clears rust on brake discs, and lubricates moving parts.

EVERYTHING YOU NEED TO KNOW ABOUT CAR INSURANCE FOR NEW AND USED CARS IN SOUTH AFRICA

Your car is one of your most expensive, most utilised possessions. It follows that you need to protect it. Moreover, most vehicle financing institutions insist on comprehensive car insurance to protect their risk. Below is a comparison of car insurance options, plus everything you need to know about car insurance to make the best decision for you and your car.

There are many options when it comes to car insurance.

• 3rd party-only insurance ̶  This covers the amount you are legally liable for to another party.
• Limited fire and theft car insurance ̶  This includes 3^rd-party cover benefits, but only if the loss or damage is due to fire, lightning, explosions, theft or attempted theft, and includes any liability relating to the vehicle.
• Comprehensive car insurance ̶  Comprehensive cover is complete cover as it covers accidental loss or damage to the vehicle including 3^rd party cover.

These are the most common types of car insurance. Some insurance companies might offer more specialised vehicle insurance. Santam has these additional car insurance options:

• 4x4 and off-road vehicle insurance ̶  This covers the unique risks associated with owning and driving a 4x4.
• Luxury vehicle insurance ̶  This executive car insurance covers the higher costs and risks of owning and driving a luxury vehicle.

Is comprehensive car insurance a better choice?

When it comes to getting complete peace of mind, comprehensive car insurance is the highest level of protection you can get for your vehicle. This is because it is the most extensive form of insurance cover that covers all bases and protects against unforeseen events. It is also the cover that financial institutions insist on to protect their asset. No matter what happens, you will know your investment is well looked after on and off the road.

In spite of this, many people are anxious that their insurance claim will not be sufficient to cover the cost of a replacement car.

For this reason, Santam offers comprehensive car insurance that includes a guaranteed value option to help car owners avoid any uncertainty regarding what the payout will be in the event of damage or loss to their vehicles.

This new concept in auto insurance guarantees the sum insured on your policy schedule. You will therefore know exactly for what you will be reimbursed. “It is worth noting that the sum insured set as the guaranteed value may still not be adequate or sufficient to cover the cost of the claim, or to replace a vehicle,” says Ewald Kemp, Underwriting Systems and Development Personal Lines Manager at Santam. “The onus always rests on the owner to ensure the amount he/she insured the vehicle for is correct.

While most insurance companies offer some kind of comprehensive cover, Santam’s comprehensive car insurance includes these significant benefits:

• Replacement costs for locks, keys and remote controls
• Recovery costs of found vehicle following theft or hijacking
• Emergency accommodation
• Emergency costs payable to public authorities
• Trauma treatment
• Emergency expenses of passengers (your family).

Plus, as an insurance policyholder with Santam, you also qualify for these additional benefits:

• Six free SOS services, such as roadside assistance, a drive-home service or emergency household repairs
• Free legal advice or route assist over the phone

The quest for affordable car insurance

Now that you know more about what vehicle cover options are available, you need to know how much you’re going to pay. Did you know that insurance companies look at several criteria before determining what your premium will be?

• The make and model of your vehicle. Some cars are lower theft risk or are more expensive to repair than others.
• Your self-payment portion (your excess) ̶  the higher the excess, the lower the monthly premium.
• The type of car insurance you choose, e.g., comprehensive, as well for what usage it will be used e.g., private or business use, and who will be driving the vehicle.
• Your insurance history ̶  if you are a high risk or not.

We all want a good deal, even from our insurance broker! Here are some things you can ask your short-term insurance company in South Africa in order to adjust your premium to suit your pocket:

• Will combining household insurance with my car insurance give me a discount?
• Can my excess structure be changed to reduce my monthly premium?
• Are there any cover options on my policy? In the event your vehicle is not subject to a credit contract with a financial institution, comprehensive cover may not be required and may be changed to limited cover at a reduced premium. Or covers that can help you save premium like the Santam SmartPark cover option that saves on premium if you do not drive much.
• Do you offer value-added benefits?
• How flexible are you? Can you adjust my cover to meet my needs at any time?

When choosing an insurer, choose one that offers a policy tailored to suit your needs and your budget. The right insurer is not necessarily the one with the lowest premium, but the one that ensures you have adequate coverage at the lowest price. Also, remember that affordable does not equal cheap. Sometimes “cheap” ends up costing you more in the long run.

How to switch car insurance

You might have opted to be insured with the bank that is financing your vehicle. You might feel locked in or obliged to stay with the insurance solution for fear that you will lose your financing if you switch. However, that is not the case.

Switching your car insurance can be done at any time. Here’s how:

Review what you do have.

1. Maybe you don’t have to leave. Your driving habits might have changed, you might have a different living and working environment, or you might just be dissatisfied with the service you’re getting. Maybe you just need to change policies. Discuss reduced premiums. It might be better to stay with your existing insurance provider if they are able to meet your financial constraints. There might be different offers available that you are unaware of, such as Santam’s SmartPark car insurance that saves on premiums when you don’t drive much.
2. Speak to the professionals. If you are sure it is time to switch insurance providers, then chat to your broker. He or she will know what insurance policies will best meet your needs and lifestyle.
3. Ready? Read the fine print. Compare quotes based on the same level of cover. If the price is significantly better, check the details of the agreement to make sure you’re still getting the comparative value.
4. Get the offer in writing. Made your choice? Great! Get the offer from them in writing and review it carefully before signing.
5. Cancel your policy with your previous insurer in writing. Make it official and cancel your policy in writing so that you have a record of it.
6. Save your new insurer’s details. Keep their contact details handy, and display their details on your car  ̶  maybe with a sticker or something practical so that you have their details when you need them most. To make things even easier, Santam allows clients to manage their insurance online, as well as with their mobile app. That way, you can carry out insurance-related tasks and improve safety, with ease.

Get an online car insurance quote

Conclusion

South Africans love to drive, and we love our cars. We drive to get to work every day, or to tackle the school run and daily errands. We drive to get away from it all and go on holiday. Our cars might be our livelihood, transporting others to and from work. No matter why we have them, cars are very much part of what makes us who we are.

So, whether you are buying a car fresh from the showroom, trading in your old car, or purchasing a used car, you can truly enjoy the countless hours spent on the road when you have the reassurance of a trusted insurance company behind you all the way. Safe travels!