REDUCING VEHICLE MANUFACTURING COSTS

We explain and investigate the key factors influencing vehicle cost

- Graham Eagle

Before the 30% decline of the automotive market in 2020 as a result of the COVID-19 pandemic, the market shares of the established premium brands - traditionally higher in SA than many markets-had already begun to decline. Simultaneously, shares of low-to mid-priced products, many offering excellent standard feature levels, have increased significantly.

SA MARKET CHANGES

Annual sales were constant at around 360 000 units or so in the years before the pandemic-induced slump in 2020, so one could be forgiven for not immediately recognising the real change in the SA car market-the buydown trend-which continues today, even as the market recovers. Reductions in disposable incomes have forced buyers into lower-priced vehicles. Downsizing is not practical for all. Many shift their priority from status and luxury to similarly sized but more affordable alternatives to contain their motoring expenses: monthly installments, service costs, insurance, fuel costs and resale value. Market shares of premium brands have declined, shares of established brands with a reputation for reliability, low running costs and good resale values have increased, while some newer brands-offering well-equipped and competitively priced vehicles-have entered the market, making a strong impact.

At the same time, the shift from sedan body shapes towards compact hatchbacks and SUVs continues, with their combined market share now approximately 70% of the passenger market. In particular, the SUV segment has expanded considerably since the mid-'90s, when it consisted of a handful of 4x4 off-roaders, to now include superluxury, high-performance, everyday family and entry models as manufacturers respond to customer buydown.

Price-competitive vehicles are far more complex than limiting features and specifying simpler mechanicals. We uncover the other factors driving vehicle cost and how manufacturers control these to ensure their competitiveness.