Back in April, when this pandemic was new and we all faced an unknown period of lockdown, potential financial instability and uncertainty over what would happen next, new car sales across Australia plummeted 48.5%. With this – the biggest decline recorded in almost 30 years of tracking – Australians spent at least $1 billion less on new cars than they did during April the previous year.
But, as the situation evolved, so did demand within the industry. Fears of the virus pushed regular commuters away from public transport and back to their cars, resulting in increased demand for used cars. With less money being spent on international travel and access to super opening consumers’ pockets, it also meant buyers had more cash to spend as they shopped around.
Fewer Cars For Sale
Now, eight months later, the used car landscape has changed dramatically due to the higher demand from consumers – and the marked lack of supply to satisfy that demand. So, what’s been happening?
According to recent data from JP Morgan, overall listings at online car sales site Carsales were down 20.5% year-on-year for the second half of 2020, with private listings in particular experiencing a huge drop of 45.7% during the same period. As for dealer listings, these fell by 7.3% compared with 2019, with new and demo listings also decreasing by almost 25% (1).
All of which leads to the question, why the change? Quite simply, because we’re in the middle of a global car shortage. The pandemic has caused chaos the world over, leading to production and supply chain slowdowns – so there are fewer cars being made. With fewer new cars being bought and sold, there are obviously fewer used cars for buyers to choose from.
But it’s not just that. Much of dealers’ used car stock comes from previously leased fleet vehicles. With the lockdown changing the way we work and travel, those fleet vehicles haven’t seen the same use or turnover, and as a result, there aren’t as many available for sale in used car dealerships.
As is the way, when supply decreases and demand increases, prices rise. In fact, if you were to sell a car you bought 6-12 months ago, there’s a chance you would get a higher price for it than you originally paid. This is almost unheard of in the world of car sales, where cars are known as depreciating assets.
According to automotive auctions company Pickles, their stock is down 35% on pre-COVID levels, and as a result, sale prices are up almost 30%. Meanwhile, Carsales data shows similar price increases, with the overall median price of used cars listed up 19.4% year-on-year to $23,888.
As an example, the average price for a used Toyota Landcruiser on the site in October was $62,500, up 25% compared to the same time last year. Within the passenger cars market, sale prices were up on the three top-selling cars within this segment, with the Mazda 3, Volkswagen Golf and Toyota Corolla seeing median price rises of 14.6%, 12% and 9.4% respectively, year-on-year.
So, will these high prices last? While in the first part of 2021, prices are expected to remain somewhat the same as they are now, they should start to drop from the middle of the year, some experts say. On the other hand, others predict a much longer wait until we see prices drop, with the potential for third waves of the virus to continue to cause issues in auto manufacturing.
Where To Buy
That means if you’re looking at buying a car, you should expect to pay through the nose for it. At least for now.
It is worth pointing out that while dealers and auction houses have seen a decline in listings, there has been an increase in car sales posted in less traditional outlets, such as Gumtree and Facebook Marketplace. These sites can be a great place to pick up a bargain, but the Australian Competition and Consumer Commission’s (ACCC) Scamwatch is warning car buyers to use caution.
According the ACCC, used-car scams were the second-highest form of fraud this year – accounting for $808,500 in losses. Overall, losses on classified websites, such as Facebook Marketplace and Gumtree, have increased by 60% this year, to $4.5 million (2).
It goes without saying then, that if you’re looking to buy a used car, be careful where you buy. While dealerships and auction houses may be a more expensive option, they tend to offer more protection to their buyers. Choosing to buy from these sources can also make it easier to get a car loan, although there are lenders that offer car loans for private car sales as well.
Want to know more? Check out our site to compare car loans today.