Used cars values have jumped by 25 per cent since the beginning of the year, a new report reveals, spurred by a drop in supply, a lift in demand and the lockdowns instituted to help contain the COVID-19 pandemic.
The surge comes after used car values increased by 7 per cent in August, according to Moody’s Analytics Price Index, lifting them to an all-time high exceeding the record set during the global financial crisis.
“There has been a shift towards personal transportation in place of ride-share services, public transportation, and air travel,” Michael Brisson, a senior economist and associate director at Moody’s Analytics, told RateCity.
“This change in preference has been in response to fear of contracting the virus or, in some cases, not wanting to deal with the hassles of increased precautions.”
Moody’s Analytics price index tracks car prices based on data from Pickles auctions. The analysis comes as unemployment is at a 20 year high, house prices are forecast to contract and the country experiences its largest recession since the 1930s.
SUV prices rise by more than 30 per cent
Used car prices began to surge soon after the lockdowns lifted in May, according to the price index, leading to a yearly lift in passenger car sales of 23 per cent.
But falling fuel prices bolstered a rise in SUV and light truck values even more -- by 32 per cent over the previous year.
The rising values in used car prices coincides with a 29-month fall in new car sales, owed to tighter lending standards and declines in the real estate market, Mr Brisson said.
“Limited supply of what were previously new-vehicles now means fewer low-age, low-mileage vehicles available on the used market,” he said.
“Used vehicles remain a viable substitute for new vehicles when the preferred new vehicle is not available.”
Other factors contributed to the rise in values too, including dealers apparently running low on some new car stock, the extension of leases and a drop in repossessions.
“Leases were extended during the early days of the lockdown out six to 12 months, and those vehicles have not yet made their way back to the market,” Mr Brisson said.
“Further, banks are still forgoing repossessions (as a COVID-19 relief measure), limiting another avenue for vehicles to make it into the wholesale market.”
Is now a good time to buy?
Used car prices have been surging in developed countries around the world because of the ripples the COVID-19 pandemic sent throughout the automotive world.
Prices are expected to hold for a while, and eventually fall as more new and used vehicles are listed for sale, Mr Brisson said.
“COVID-19 related demand increases are probably limited going forward,” he said.
“Many that planned to purchase vehicles have already switched and the hope is that a vaccine or future treatment that will return mobility back to pre-pandemic trends is less than a year away at this point.”
Need a car? Here’s what to consider
The health crisis and its ongoing nature might leave people feeling more comfortable if they had a car, as opposed to catching public transport or hailing a rideshare.
But the decision should not be taken lightly as there’s a number of factors to consider, Sally Tindall said, head of research at RateCity.
“If you’re thinking about buying a car under finance, work out exactly how much you can afford to borrow, factoring in on-road costs such as rego, insurance and maintenance,” she said.
“Also make sure you add a generous buffer into your calculations, in case of emergencies, because one thing COVID has made us realise is that we can’t predict what the future will hold.”
Holding off from buying a car might make it possible to shop around for a better deal, Ms Tindall said, adding people could make use of car sharing services such as Go Get or Car Next Door to help get them by in the meantime.
“If your budget is tight, picking a low-cost car loan lender will also be crucial,” she added.
“There’s no point paying north of 10 per cent on a loan if you can secure a more competitive rate from one of the lower cost lenders.”