Are new cars worth the price?

By Roger Houghton

Yes, new cars are worth their price, although unfortunately for South African buyers, cars, just like fuel, carry a very heavy tax burden which makes them seem expensive when compared with some other world markets.

The various taxes on a new car can add up to as much as 45% of the purchase price! Even locally assembled cars include many imported components that are taxed too.

The average percentage of taxes in the price of a new car in South Africa ranges from about 18.5% for an entry-level vehicle up to as much as 45% for premium products, with a selling price of more than R850 000.  The taxes comprise 14% Value Added Tax (VAT), unrebated import duty (which can range from 0% to 18% for products from the European Union (EU) and 25% for non-EU), CO2 taxes and luxury ad valorem excise duty which rises exponentially from about 0.5% to a maximum of 20% for premium vehicles.

In the case of the other highly taxed essential for motorists, being fuel, taxes account for about 35% of the retail price. The tax figure has grown from an index of 166.5 in 2006 to 453.33 in 2017. It is made up of the fuel levy, customs and excise levy and the Road Accident Fund levy.

One of the main reasons that cars are worth their money is the fact that the South African vehicle market is one of the most competitive in the world, driven by the inordinately large number of makes (50) and models (more than 3 000) on the local market. South Africa is not large when compared to some other emerging countries but obviously appears attractive to most of the world’s vehicle makers.

Even though monthly sales figures for some of the smaller players hover around 100 units a month, these companies continue to trade in a market which they once believed would grow exponentially into Africa, something which has not happened.

The level of “trade-in assistance” and special financial offers to lure South African car buyers to invest in a new set of wheels is probably higher now than ever before.

In addition, several of the manufacturers must meet set quarterly sales targets to qualify for lucrative incentives – which many dealers nowadays factor into their budgeting. This means trading is very vigorous. Dealers must be satisfied with far lower profit margins than was he case in the past, while keep their businesses viable through servicing vehicles, selling replacement parts and accessories as well as financial products such as insurance and extended warranties.

In addition, car makers are forced by consumer demand, as well as government regulations, to spend a lot of money on safety features and emission control, which all add to the price of the modern car, compared to the far more basic models of yesteryear.

Today, vehicle makers believe all potential buyers are looking for standard safety features such as a minimum of anti-skid braking (ABS) and airbags. However, recent Euro NCAP test data revealed how some economy cars made in India and sold in South Africa failed basic crash tests, but are still proving very popular locally. The two models that demonstrating that a low purchase price is particularly attractive even though safety features are minimal are the Renault Kwid and Datsun Go.

This serves to underline that for many people price is the ultimate decider when buying a new car.