Used car prices drop as new car supply returns to normal

Used car prices are on a downward trajectory, but if you're in the market for a bargain you’d better not hold your breath, investment bank Moody’s says.

If you want a brand new Toyota RAV4, you’d better be patient.

Used car prices are well past their peak and will fall another 10 per cent this year, investment bank Moody’s says, but those in the market for a vehicle should not get too excited, with pries to remain higher than pre-pandemic levels for the time being.

Analysts from Moody’s Analytics say in a report released on Monday, that used car prices in Australia are on a “sustained downward trend”, falling 12 per cent from highs reached in May last year.

Prices are expected to fall by slightly more than 10 per cent over the calendar year, but will remain higher than pre-pandemic levels.

Used car prices shot higher during the pandemic due to a shortage of semiconductors used in computer chips, supply chain problems, and other issues getting new cars to market.

Australian buyers have experienced wait times for some cars blowing out to more than a year as manufacturers scramble to keep up with demand, and some used cars have been selling for more than they went for off the showroom floor.

For example, while a top-specification Toyota ZR Hybrid costs about $40,500 new according to a recent report from motoring organisation RACV, three year old models can be found for sale online currently for as much as $48,000.

Moody’s says global production of new cars is starting to normalise, which will drive used car prices down, however on average, prices are still 54 per cent higher than they were before the pandemic hit.

“The decline (in used car prices) is driven by increased new-vehicle supply as the semiconductor shortage eases,’’ Moody’s says.

“Through 2021, a lack of electronic semiconductor chips put auto industry production into low gear for more than a year, limiting global vehicle inventories.

“Limited inventories for new vehicles sent consumers to the used-vehicle market, driving up prices. Although global vehicle production has not returned to pre-pandemic levels in Europe and Asia, there has been a decent improvement.’’

Moodys says Australian Bureau of Statistics figures showed that $7.3bn worth of cars was imported in the third quarter of last year, up 29 per cent on the same period for 2021.

“For 2023, we expect that the supply of new vehicles will continue to increase, further easing pressures in the second-hand market.

“Recently, Toyota announced it expects to surpass its pre-pandemic production level in 2023.’’

Demand for used cars is also expected to weaken, as higher interest rates cut into household budgets.

“Households will increasingly feel higher borrowing costs this year as fixed-rate residential mortgages are renegotiated and labour market conditions cool. Additional strain is coming from high prices for non-discretionary items, including food and energy.’’

While some car manufacturers have started discounting again for the first time since the pandemic struck - most notably Tesla which slashed its prices earlier this month in a bid to boost demand - wait times for some models such as the Toyota Rav 4 Hybrid are still reportedly well over 12 months.

Moodys’ says it expects used car prices to return to normal levels in 2024.

“However, if supply returns faster than expected and consumer demand wanes significantly amid rising interest rates and broader gains in the cost of living, used-vehicle prices have room to fall more rapidly than the current baseline outlook.’’

Originally published as Used car prices drop as new car supply returns to normal