MOTORING NEWS - For decades, vehicle valuation in South Africa was built around a single, centralised reference point. If you wanted to know the trade or retail value of a vehicle, you turned to a well-established guide - a system designed to bring consistency and predictability to an industry that relies heavily on accurate pricing.

But the reality is that this model was built in a vastly different automotive landscape. Today, the way we assess the value of vehicles is shifting rapidly, exposing gaps in an outdated system and calling for a more dynamic approach.

A system that no longer holds true
Historically, vehicle valuation in South Africa followed a lagging model. The first valuations book known as the Mead & McGrouther Auto Dealers’ Guide was published in 1960, relying on a manual process where representatives physically visited dealerships, recorded stock, purchase prices, and sale prices, and compiled the data into a monthly guide.

However, the automotive market has evolved significantly over the past two decades. Today, used vehicle sales outpace new vehicle sales, consumers have access to more data points, and economic and supply chain disruptions can cause drastic swings in vehicle values almost overnight. The single-source valuation model that worked in a slower, more predictable market is no longer keeping up.

The problem with a lagging model is that it takes historical data and tries to project it forward, often missing real-time market shifts. This was evident during the COVID-19 pandemic when used vehicle prices surged due to global semiconductor shortages limiting the supply of new vehicles. The guide continued to show depreciation, but in reality, used cars were appreciating in value. This left consumers underinsured, as banks and insurers continued using outdated references while replacement values soared by as much as 40%.

The issue of a single dominant player
Currently, South Africa’s vehicle valuation market is controlled by two major suppliers, with one player holding the dominant market share. This creates an environment where a single valuation source dictates the entire industry, leaving consumers, dealers, and insurers with no choice but to use those values.

The effort and cost required for financial institutions to switch out the coding data already embedded into their systems is significant, which means the industry remains locked into a single reference point, despite its limitations.

Another key issue is that this valuation model is based on a national average, failing to account for variations driven by vehicle demand, pricing, and desirability by province or city. Factors such as colour, model popularity, and local market trends influence actual sale prices, but these nuances are not reflected in a valuation system that relies on broad national data.

A flawed bottom-up approach
The existing vehicle valuation model also follows a bottom-up approach—starting with historical data rather than real-time market pricing. 

A more accurate method would be a top-down approach: beginning with what the vehicle is currently selling for in the market and then working backward to determine trade and finance values.

Dealerships, for example, look at what they can sell a car for first. If they know a car will fetch R100,000 in the current market, that should determine its trade-in value.

The lack of consumer choice
In an era where consumer experience and personalisation are priorities, the existing vehicle valuation model offers little choice, leaving consumers with little to no say in the valuation of their vehicles. Car buyers, dealers, and even financial institutions should have access to multiple sources of data, rather than being locked into a single reference point.

The industry needs real-time, data-driven valuation methods that consider multiple factors, including regional demand, individual vehicle specifics (such as vehicle identification number data), and actual sale prices. 

A system that reflects how modern buyers and sellers interact with the market is long overdue. 

About Kredo Mobility

Kredo Mobility is a digital solutions platform that aims to reshape the South African automotive sector by making mobility more accessible and affordable for consumers, and safer, more efficient and effective for dealers and the broader ecosystem. It aims to do this by using homegrown digital solutions to streamline processes, identify the right customers quickly, reduce fraud, offer a single view of customers and vehicles, and provide real-time pricing information for vehicles.

For more information visit: https://www.kredo.co.za/.

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