Experts reveal why you should wait to buy a car as industry faces soaring prices and supply crisis

The car shortage plaguing the planet has seen prices for used cars skyrocket – but according to a shock report, a crash could be coming.

There has never been a worse time to buy a car in Australia, with a perfect storm of conditions sparking a new car shortage and sending the price of second-hand vehicles soaring.

Firstly, the industry has been hit by a global shortage of semiconductors – also known as microchips – which are a crucial part of modern cars as well as all electronic items including mobile phones and computers.

That shortage was caused by the Covid pandemic which sent nations – and manufacturing plants – into lockdown around the world, disrupting supplies.

To make matters worse, supplies were further disrupted by fresh restrictions on international ports and borders, and car companies that managed to get their hands on semiconductors also struggled to transport their vehicles and keep up with the fevered demand.

As a result, people have been hanging onto their cars for longer than they normally would, with waiting times for new cars blowing out to six to eight months.

That has sent the cost of used cars skyrocketing, with desperate consumers happy to fork out prices that would have been unthinkable several years ago.

‘Crazy’ situation

Bill Tsouvalas, founder and managing director of asset finance broker firm Savvy, told news.com.au prices would have to come down “at some point” – but not for another 12 months at the very least.

“The current used car prices can’t stay where they are forever … but dealers won’t get back to stocking the same levels they were prior to Covid for at least another couple of years,” he said.

“At the moment, we have factory orders that are stretching out to six to eight months away.

“There’s no real surplus in stock that dealers currently have in their inventory. For example, we have one dealer partner who used to stock around 350 cars, and now he has 38. It’s crazy.”

Used car prices are soaring – but for how long? Picture: iStock

Late last year, Savvy’s 2021 Car Ownership Costs report found that used car prices had jumped to 37 per cent above the pre-pandemic high in February 2020, while car sales in November 2021 had fallen by 15.3 per cent over the previous year, highlighting how the supply shortage had impacted Aussies.

Mr Tsouvalas said in some cases, customers were paying more for used cars than new ones as they did not want to wait for months on end for a new vehicle to arrive.

Meanwhile, rarer, in-demand cars are doubling or tripling in price, such as Ford G6E Turbos which would have sold for around $10,000 just two years ago, but in 2022 were fetching close to $30,000 – a situation Mr Tsouvalas said was “ridiculous”.

However, Mr Tsouvalas said the shutdown of international travel for several years meant many Aussies were more cashed up than usual, and were therefore happy to spend a bit more on assets like cars.

He said if you don’t need a used car urgently, it was best to hold off and wait for prices to potentially drop down the track.

“At some point the music will stop, but I just can’t see it happening for the next couple of years,” he said.

Crisis ‘beyond our control’

James Voortman, chief executive of the Australian Automotive Dealers Association, told news.com.au the demand for cars was due to a range of factors including an aversion to public transport during the pandemic, a shift towards local driving holidays instead of overseas flights, and the fact people were feeling “confident in their wealth” due to low interest rates and government incentives.

“Price increases in Australia have been around 10 to 30 per cent depending on the cars, but it hasn’t been as bad in Australia as it has been in the US where we’ve seen much, much larger inflation,” he said.

“When this ends depends on when we get a supply of new cars into Australia, but the best guess from manufacturers is towards the end of 2022.

“When supply does return to normal, we will see a reduction in prices … but it’s beyond the control of Australian businesses as all manufacturing is done offshore, so all we can do is hope that all those problems overseas are resolved.”

Hit by the global semiconductor shortage, German car manufacturer Volkswagen will soon eliminate almost all night manufacturing at its historic site in Wolfsburg. Picture: John MacDougall/AFP

Used car market ‘could collapse’

Meanwhile, KPMG predicted late last year that used car prices in the US could plummet by 30 per cent by the end of the year – and while the firm’s report was US-specific, it’s not unthinkable to expect a similar situation in Australia, given the problems affecting the industry are global.

“History tells us the current frenzy in the used-car market will come to an end,” the report reads.

“Chip suppliers will catch up with demand, supply chains will unclog, and the massive auto manufacturing machine will shift back into high gear and dealer lots will again be full.

“When that happens, the used car market could collapse. The millions of consumers and businesses that are forced to buy used cars today, will go back to buying new ones.

“Used car demand would normalise and the relationship to new car prices would be restored. That would imply a drop in used-car prices of about 30 per cent below where they are today.”