Used car market beginning to return to normal

Car buyers have been battered by a crippling spike in used car prices over the past two years. But there are signs that the pain could be ending.

Used car prices are starting to wane. Picture: Thomas Wielecki

In a rare piece of good news for battling Aussie families, used car prices have started to come down.

Prices have soared by 40 per cent since the beginning of the pandemic, as new car shortages forced buyers to pay well over the odds for low mileage used cars.

At the height of the market, five-year-old cars were selling for thousands of dollars more than they cost new.

But supply of new cars has improved in the past couple of months and the market for late model used cars is cooling.

Used car prices are beginning to ease. Picture: Thomas Wielecki

Sean Hanley, vice-president of sales and marketing for Australia’s biggest selling brand, Toyota, said the less positive economic outlook was contributing to a correction in used car prices.

“I don’t think we are going to fall off a cliff anytime soon in terms of our economy. But it is clear to me there are some signs things are starting to tighten up a bit.

“I hear from our dealers that used car prices might be starting to come down a little, correcting for a better word. That’s always a lead indicator.”

Hanley’s comments were reinforced by Ross Booth, the general manager of used car valuation bible, Red Book.

Sean Hanley, vice-president, sales and marketing for Toyota. Picture: Getty Images

“We would regard the market as flat from a used car perspective. It’s not going up,” he said.

He said Australia hadn’t yet followed the US market, where prices were dropping quickly.

The slowdown in Australia’s used car market had more to do with new car supply issues improving “rather than demand falling off a cliff”.

But eventually demand would ease in Australia as the economy slowed.

At the same time, the number of used cars advertised on leading classified website Carsales has increased dramatically in recent months.

There are now roughly 170,000 cars for sale on the site, compared with about 150,000 in July and 135,000 in March.

“There’s a lot more used car inventory than there was,” Booth said.

Seller’s price expectations, which were sky-high six months ago, would also be coming down as overpriced cars failed to attract buyers.

General manager of Red Book Global, Ross Booth. Picture: Supplied

“The price you could get six months ago isn’t the price you can get now. So now the seller is saying ‘for me to sell this, guess what I have to do? I have to lower my price expectations’,” he said.

It’s not all good news, though. Booth predicts that a major economic slowdown could push the price of more affordable used cars up, because people could no longer afford low-mileage vehicles.

“In the US some used prices are going up. But it’s actually the cheaper cars. People can’t afford to a 20-30-40 thousand-dollar car anymore. What they can afford is a $10,000 car. So the market shifts,” he said.

Well-known and trusted brands would also hold their value better in an economic downturn.

“People tend to gravitate towards the safer option in times of uncertainty,” he said.

People gravitate to well-known brands in a recession. Picture: Mark Bean

He predicted that people who had paid over the odds for a used car on finance could be “in a lot of pain” when their lease ended.

Booth’s advice to people looking at low mileage used cars is to stretch to a new car, even if it means buying a budget brand.

Sales of Chinese brands have boomed in the past couple of years because they’ve been in good supply and have been cheaper than four or five-year-old versions of popular cars from leading brands such as Toyota and Mazda.

While buyers have traditionally baulked at lesser known brands because of poor resale values, they have been reassured by the fact that a cheap new car is covered by a long warranty, while an expensive used cars isn’t.

“Australians have always been tempted by value,” Booth said.