Lockdowns contribute to fall in used car prices after 30pc climb through Covid-19 pandemic

If you bought a Toyota HiLux in January 2020, it probably hasn’t lost a cent in value, such has been the strength of the used-car market through the pandemic.

Some relief could be on the way for potential car buyers after sky-high used car prices dropped for the first time in more than a year across August and September, according to data from Moody’s Analytics. Picture: Richard Cisar-Wright.

Relief could be on the way for potential car buyers after sky-high used car prices dropped for the first time in more than a year across August and September, according to data from Moody’s Analytics.

But the price decline “is more cause for alarm than celebration”, according to Moody’s economist Michael Brisson, as it represents the impact of a consumer activity “tailspin” caused by Covid-19 lockdowns in NSW and Victoria.

In an analyst note released on Tuesday, Moody’s tracked an almost 5 per cent decline in prices from peak levels in July, the first decline since April of 2020.

Manufacturing and shipping disruptions and microchip shortages throughout the pandemic have reduced the supply of new vehicle stocks, while international border closures and public transport health concerns have sent car sales skyrocketing, limiting the number of used cars while pushing up prices.

Mr Brisson said used cars had jumped 35 per cent in price since the pandemic started, while utes had jumped 39 per cent.

“Since the dramatic drop in prices in March and April 2020, the rapid movement has been upward,” he said.

“The strength of utes is being propelled mainly by a dearth of inventory for larger vehicles. A lack of inventory has kept prices steady despite headwinds from rapidly rising fuel prices.

“According to the Moody’s Analytics AutoCycle residual value forecasting tool, a 2020 Toyota HiLux that has been driven 15,000 kilometres per year starting in January 2020 is worth the same amount today as the day it was driven off the dealer’s lot.”

The growth in demand and global shortage of new and used cars has helped dealer groups achieve record profits in the 2021 financial year.

In August Peter Warren Automotive unveiled a $37.5m net profit for the year, more than twice its original forecast, while Eagers Automotive flagged a record $218.6m before tax profit for the six months to June.

But Mr Brisson said the recent east coast lockdowns had reduced consumer demand for new and used cars, leading to a decline in prices.

“The recent price drop across segments is a welcome reprieve from the exorbitant levels consumers continue to experience,” he said.

“Nevertheless, the root of the pullback in prices is more cause for alarm than reason for celebration. Extended lockdowns in the states of New South Wales and Victoria sent consumer activity into a tailspin.”

With the lockdowns lifting Mr Brisson said it was unlikely there would be a more sustained decline in both used and new car prices until global supply issues could be resolved.

“Barring any unforeseen setback in the Australian economy, prices will remain well-supported by steady demand and a lack of inventory on the new and used-vehicle market,” he said.

“Used-vehicle prices are expected to move sideways until midway through 2022 when the new-vehicle market’s supply-chain issues have been worked out.

“Until then, elevated used-vehicle prices will continue to be the somewhat new normal.”