A brutal development for used car bargain hunters

Used car prices are falling across Australia.

As the supply of new cars increases, prices of new model used cars fall, while bargain hunters are increasing the prices of old hatchbacks and sedans.

The latest data from Moody’s Analytics, Cox Automotive Australia and Pickles shows an unexpected increase in demand for older and more affordable used vehicles.

Cox Automotive Australia Corporate Affairs Manager Mike Costello said consumers were increasingly opting for lower cost vehicles as inflation and economic pressures tightened household budgets.

“For example, we see that used cars that are 8-10 years old continue to be priced proportionally higher than their 2019 equivalent levels when compared to younger used vehicles that are 2-4 years old,” he said.

Data from Cox Automotive supports this trend.

The cost of used passenger vehicles aged 8-10 years has increased by 66.7 percent since December 2019, significantly higher than the 33.1 percent increase for vehicles aged 2-4 years.

Costello said traditional passenger vehicles such as hatchbacks and sedans retain their value better than SUVs and pick-ups.

“Because the decline in new sales of these vehicles makes it difficult to find second-hand ones,” he explained.

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Although older vehicles perform well, used vehicle prices are generally decreasing.

The Used Vehicle Price Index fell 6.7 percent from a year ago, according to Moody’s Analytics.

While prices are 18.6 percent lower than the peak in May 2022, they are still 44 percent higher than the pre-pandemic level in June 2019.

This trend is largely attributed to the increased availability of used vehicles coupled with increased global production of new vehicles.

The Asian automotive industry, particularly in China and Japan, is projected to see significant production growth of 11.6 percent and 18.2 percent, respectively, in 2023.

This increase is expected to drive more vehicles into Australia’s secondary market, thereby putting downward pressure on used vehicle prices.

In addition to supply factors, high interest rates also affect the used car market.

Moody’s Analytics reports that high borrowing costs are eroding disposable incomes, leading to reduced demand for used vehicles.

High prices and high borrowing costs are hurting consumer confidence, said Catarina Noro, associate economist at Moody’s Analytics.

“Households are starting to be more cautious about major purchases like cars,” he said.

Noro expects the downtrend to continue.

Data from Cox Automotive and Manheim Australia shows dealers’ used car stocks increased by 10.5 per cent last year, while sales increased by 8.4 per cent.

Despite the overall price decline, used car dealers are seeing a healthy increase in sales volume, thanks in part to increased inventories and greater availability of vehicles.

In June 2024, dealers’ used car sales reached the highest level since November 2020.

SUVs constituted nearly half (47.6%) of the second-hand vehicle market sold by dealers, while passenger cars constituted 31.9 percent and light commercial vehicles constituted 20.2 percent.

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Pickles’ Quarterly Automotive Report reveals a remarkable 246 percent year-over-year increase in EV sales, setting a new quarterly record.

Pickles Chief Commercial Officer Fraser Ronald said the figures highlighted the “resilience and adaptability” of Australian consumers.

“The increase in EV sales is particularly notable as it reflects the growing acceptance and demand for sustainable vehicles,” he said.

Pickles’ report also highlights the increasing choice of EV models in the used car market, with top sellers including the Tesla Model 3, Hyundai IONIQ 5 and Nissan Leaf.

But the used electric vehicle (EV) market is experiencing volatility.

Tesla’s recent price cuts and the affordable new models launched by rising Chinese brands such as MG have negatively impacted the residual values ​​of used Tesla vehicles.

Costello said the decline was “unlikely to be permanent” and predicted resale values ​​would stabilize as the EV market matures and technology improves.