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Why Are Cars in South Africa So Expensive?

This article was ghostwritten for Pawn my Car. It is written in British English.

Ask the average person in South Africa what they know about our car industry and there is a good chance they will tell you that we pay more for our cars on average than buyers from other countries.

Unfortunately, this is true and while the cost of running and maintaining a car might be higher in other countries, the initial selling price in South Africa is still significantly higher. A lower fuel cost or insurance premium means little when consumers cannot afford to buy a new car in the first place.

There are a number of reasons why we have to fork over more for the privilege of driving a car fresh from the assembly line and a few stand out above the others as the main contributors.

Taxation

Tax on a new or imported vehicle can be quite a complex process, suffice to say the final tax amount can be as high as 45% when all is said and done. This is the main reason behind our higher selling prices. Even cars that are assembled in South Africa don’t escape the taxman, with their imported parts being subject to the same taxation.

With the various taxes such as VAT, import duties, ad valorem tax (luxury excise tax), and emissions tax piled on, it’s no wonder that manufacturers have little choice but to recover this revenue by inflating the selling price of their vehicles, whether it’s to dealers or individuals.

By way of comparison, a vehicle imported into a European country is not subject to import tax, provided the country of origin was also in the EU. This is one of the many ways that other countries save where we do not.

Model Specifications

The specifications of the car you buy can change quite dramatically from country to country. In South Africa, the specifications of an entry-level car tend to be higher than average, with consumers expecting or even demanding safety features such as ABS and airbags. Even luxury features such as Bluetooth integration and leather seats are more in demand with certain higher-end brands, where consumers expect them to be standard instead of viewing them as the optional extras that they might be overseas.

Lower specification models are becoming less likely to be imported in the first place and therefore aren’t available as a more cost-effective alternative. This consumer trend away from accepting cheaper models is one of the reasons why you won’t find a new Citi Golf on Volkswagen’s showroom floor.

Exchange Rate

The exchange rate also has a big part to play in the eventual selling price of a car, with a weaker rand dictating a higher base cost even before any taxes have been levied. Unfortunately, with political instability around the world and at home, there is little the importers, dealers, or consumers can do about it.

Almost overnight, the price of a vehicle costing US$ 30,000 can change from R 390,000 on a rand/$ exchange rate of 13.00 to R 420,000 on a slightly higher exchange rate of 14.00 and with the rand being weaker against the pound sterling and the euro, fluctuations in the exchange rate affect the prices of the cars coming from the UK and Europe even more.

Service Plans

While not very common, some manufacturers include a compulsory or built-in service plan in South Africa, which covers maintenance and repairs. For example, in the United States, your brand-new BMW won’t necessarily come with any kind service plan unless you purchase one but the same vehicle in South Africa comes with a built-in 5-year/100 000 km Motorplan which can be valued at as much as R50 000, effectively inflating the selling price by that amount.

Is there a solution?

The issue of over-priced new vehicles in South Africa is not a new one and is a much-discussed gripe with consumers. Even the National Association of Automobile Manufacturers (NAAMSA) has raised the issue of high taxes on imported cars and car parts, arguing that, while we cannot dictate the prices set by the manufacturers, we can at least try and address the issue of rampant taxation.

A solution doesn’t seem to be forthcoming, especially while new cars are still being sold at their current prices. This has forced consumers to consider the second-hand market, an industry which may be more affordable but naturally has issues of its own; however, a reputable second-hand car dealer is still the safest and most affordable option for South African consumers available at this time.

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