The decline in consumer sentiment coupled with rising new car prices has caused the domestic vehicle purchase intention index to remain below the benchmark level (100) for eight consecutive months, remaining near its lowest point due to economic downturn exacerbated by high interest rates and inflation.
Deloitte Korea has released the Vehicle Purchase Intent Index (VPI Index) for March 2023, which surveyed over 1,000 consumers aged 18 and older in 24 countries, including South Korea, to assess purchasing intentions for vehicles.
In March 2023, the domestic consumer VPI index recorded 69.8, marking the lowest level since February 2023 (62.6) and October 2022 (63.7). This represents a 26.9-point decline compared to the same month last year (March 2022: 96.7).
Deloitte attributes this poor purchasing intention index primarily to โweakened consumer sentimentโ and โrising new car pricesโ.
The VPI index is a measure that quantifies the percentage of consumers intending to purchase a vehicle within the next six months. Deloitte Global considers an index above 100 to indicate an increase in consumer vehicle purchase intentions and below 100 to indicate a decrease, with October 2021 set as the baseline.
Deloitte analyzed that the ongoing low VPI index is significantly impacted by the rising costs of raw materials, the premiumization of parts, and increased prices of new cars due to the transition to electrification.
Amid the rising demand for automotive semiconductors due to advancements in autonomous driving, vehicle premiumization, and electrification, prices for key automotive raw materials have also significantly increased over the past two years. For example, the price of aluminum rose by 59% from $1,704 per ton at the end of 2020 to $2,703 in 2022, while copper prices increased by 42%, from $6,181 per ton at the end of 2020 to $8,797 at the end of 2022.
According to a business report published by Hyundai and Kia in March this year, as a result of increased component demand and rising raw material prices, the price of Hyundai passenger cars rose from 47.58 million won per unit in 2021 to 50.31 million won in 2022, while Kia’s passenger car prices increased from 33.65 million won to 34.31 million won during the same period.
The global consumer VPI index dropped to 84.4 in March, down 0.6 points from February. The global VPI index reached its lowest level of 77.7 in October 2022, then showed a mild recovery to 82.8 in November and 84.8 in December. However, the average VPI value for the first quarter of 2023 stands at 84.1 (January 83.1, February 85.0, March 84.4), remaining significantly below the benchmark of 80.
Deloitte Global cites several factors contributing to the decline in purchase intentions, including rising raw material prices, increased vehicle production costs due to Euro 7 compliance, rising prices due to decreased used car inventory, and higher financing interest rates due to elevated rates.
The global VPI suggests that reduced waiting times for vehicle deliveries and improved supply of semiconductors, along with an increase in electric vehicle supply and decreasing prices for electric vehicles and batteries, could drive an increase in vehicle purchase intentions.
In light of the expanding market share of electric vehicles and announcements from major countries regarding cuts or abolishment of electric vehicle sales subsidies, recent price reductions in electric vehicles led by Tesla have been noteworthy.
Manufacturers are anticipating the release of more affordable electric vehicles to enhance consumer accessibility, alongside news of falling battery prices due to stabilized key mineral costs, which is heightening consumer interest.
According to Deloitteโs survey in March, when considering direct factors for purchasing a vehicle, 24% of domestic consumers stated they want the latest features and performance in new cars, making it the most significant response. This was followed by 19% expressing concern over maintenance and repair costs of their current vehicles and 16% wanting vehicles from other manufacturers or models.
These findings show a shift in purchasing motivations compared to the previous survey in February, where โwanting vehicles from other manufacturers or modelsโ held the largest percentage (21%).
Additionally, among the financial reasons influencing car purchases, ‘delaying plans to buy expensive items’ (53%) remained the top response, with concerns over ‘depleting current savings’ (50%) coming in second.
Global consumers also mirrored domestic consumers, with the most common response for purchase motivation being โdesire for the latest features and performance in new carsโ (23%). In the global context, โwanting vehicles from other manufacturers or modelsโ (18%) and โconcerns over maintenance and repair costs of current vehiclesโ (15%) followed, showing no change in response rankings compared to February.
Unlike domestic consumers, global consumers listed ‘concern over depleting current savings’ (45%) as their top financial reason for purchasing a vehicle, followed by ‘delaying plans to buy expensive items’ (44%).
Kim Tae-hwan, the automotive industry leader at Deloitte Korea, stated, โWhile there has been a slight revival in purchase sentiment in the global market, both in Korea and globally, the automotive sales market remains rigid due to high interest rates and poor household economic conditions. Automotive manufacturers must clearly understand the consumer sentiment of those wanting to purchase and establish systematic sales strategies.โ
Lee Sang-jin daedusj@autodiary.kr