South Africa’s automotive market often leaves consumers puzzled by the high price tags attached to cars.
This phenomenon sparks curiosity: why are vehicles so expensive in this region?
From high taxation on imported vehicles to regulatory compliance costs and economic factors, there are various reasons contributing to this issue.
Understanding why cars are expensive in South Africa is crucial for individuals looking to make informed decisions about purchasing vehicles.
In this article, we will walk you through the top factors driving up car prices in South Africa.
10 Reasons Why Cars Are Expensive in South Africa
Cars in South Africa are expensive due to high taxation on imported vehicles, including local assembly components. Model specifications often include more features as standard, and a weak Rand increases prices.
Built-in service plans add to costs, and the smaller market size drives up import costs per unit. Economic factors, consumer expectations, and regulatory compliance also contribute to the high prices.
1. High Taxation
Imported vehicles in South Africa face substantial taxation, sometimes up to 45% of the car’s total price.
This taxation includes various levies such as customs duties, value-added tax (VAT), and excise duties.
For instance, as of 2022, the import duty on motor vehicles ranged from 0% to 25%, depending on the type and origin of the vehicle.
Additionally, VAT is charged at 15% on the customs value plus applicable duties.
2. Model Specifications
Cars sold in South Africa typically come with a more extensive list of standard features compared to other markets.
This includes safety features like anti-lock braking systems (ABS), multiple airbags, air conditioning, and advanced infotainment systems.
The South African government also enforces stringent safety regulations, mandating certain features as standard.
For example, since 2013, all new passenger cars sold in South Africa are required to have ABS and dual front airbags as standard.
3. Weak Rand
The South African Rand (ZAR) has historically been vulnerable to fluctuations against major currencies such as the US Dollar and the Euro.
This weakness impacts the cost of imported vehicles and components, as many automotive parts and vehicles are priced in foreign currencies.
For example, in January 2022, the exchange rate was around 15 ZAR to 1 USD, compared to 9 ZAR to 1 USD in January 2012.
Such depreciation increases the cost of imported vehicles, directly affecting their affordability for South African consumers and contributing to the overall high prices of cars in the market.
4. Built-in Service Plans
Many car manufacturers in South Africa offer built-in service plans as part of the purchase price of a new vehicle.
These plans typically cover routine maintenance and servicing for a specified period or mileage.
For instance, BMW offers a five-year/100,000 km service plan with new vehicle purchases.
While these service plans provide peace of mind for consumers, they also add to the upfront cost of purchasing a car.
In other markets where such service plans are optional or not as comprehensive, consumers may have the choice to opt out, resulting in lower base prices for vehicles.
5. Smaller Market Size
The automotive market in South Africa is relatively small compared to larger economies, resulting in higher import costs per vehicle.
The smaller market size reduces economies of scale in shipping, distribution, and marketing.
For instance, in 2020, the total number of new passenger cars sold in South Africa was approximately 380,000 units, whereas in the United States, the figure was over 14 million units.
This smaller scale increases the fixed costs associated with importing and distributing vehicles, which are then spread across fewer units, ultimately leading to higher retail prices for cars in South Africa compared to larger markets.
6. Consumer Expectations:
South African consumers have high expectations when it comes to the specifications of their vehicles, even for entry-level models.
This demand for well-equipped cars stems from various factors, including increasing disposable incomes and a desire for safety and comfort features.
For example, a survey conducted by Deloitte in 2020 found that 84% of South African respondents considered safety features as very important when purchasing a vehicle.
This preference for feature-rich cars puts pressure on manufacturers to include more amenities as standard, driving up the base prices of vehicles.
7. Economic Factors:
Several economic factors influence the pricing of cars in South Africa, including inflation and interest rate fluctuations.
For instance, inflationary pressures can increase the cost of raw materials, labor, and transportation, all of which impact the manufacturing and distribution costs of vehicles.
Similarly, fluctuations in interest rates affect financing costs for both consumers and manufacturers, influencing pricing strategies in the automotive market.
According to Trading Economics, South Africa’s inflation rate averaged 5.42% from 1968 to 2023, reaching an all-time high of 20.70% in January 1986.
8. Import Costs:
Importing vehicles and vehicle parts into South Africa incurs significant costs, including shipping, insurance, and logistics expenses.
The country’s geographical location and infrastructure limitations further exacerbate these costs.
For example, South Africa relies heavily on seaborne trade, and shipping goods to its ports from major automotive manufacturing hubs such as Europe and Asia can be time-consuming and expensive.
Insurance costs for transporting high-value cargo like vehicles are substantial.
9. Regulatory Costs:
Compliance with South African standards and regulations adds another layer of costs to vehicles sold in the country.
The government imposes various requirements related to safety, emissions, and quality standards that manufacturers must meet to sell their products in the South African market.
For example, the National Regulator for Compulsory Specifications (NRCS) enforces standards such as the South African National Standard (SANS) for vehicle safety and emissions.
Ensuring compliance with these regulations involves investments in research, testing, and certification processes, all of which add to the manufacturing costs.
10. Dealer Markup:
Dealer markup and the overall supply chain costs in South Africa play a role in determining the final retail prices of cars.
Dealerships incur various expenses, including overhead costs, sales commissions, and marketing expenses, which are passed on to consumers through markup on the manufacturer’s suggested retail price (MSRP).
The structure of the automotive supply chain in South Africa involves multiple intermediaries, each adding their margin to the final price of the vehicle.
