Used car prices balloon by 25 per cent in a year: analysts

Used car prices balloon by 25 per cent in a year: analysts

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.”


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Learn more about car loans

What is the luxury car tax?

The federal government imposes a luxury car tax of 33 per cent on the value of a car above a threshold. As of the 2017-18 financial year, that threshold was $75,526 for fuel-efficient vehicles and $65,094 for other vehicles. So a fuel-efficient car worth $80,000 would be taxed only on the difference between the threshold and the value of the car ($4,474), rather than taxed on the entire $80,000. Similarly, an ordinary car worth $70,000 would be taxed on the $4,906 above the threshold, rather than the entire $70,000. The luxury car tax is paid by dealers that sell or import luxury cars, and also by individuals who import luxury cars.

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

What is resale value?

The resale value is the price you could realistically charge if you were to sell your car. Almost every car loses value each year, although at different rates. As a guide, cars depreciate on average by 14 per cent per year in the first three years and then eight per cent per year after that.

What is proof of income?

Before giving you a car loan, lenders will ask for proof of income – documentary evidence that you earn as much as you claim you earn. Lenders will typically want some combination of tax returns, pay slips and bank statements. The reason lenders want proof of income is because they want to be sure you have the means to repay the car loan.

What is repayment frequency?

Repayment frequency is how regularly you have to make car loan repayments to your lender. The most common repayment frequency is monthly, but many lenders will also give you the option of making fortnightly or weekly repayments.

What is an interest rate?

The interest rate is the price you have to pay for borrowing money. The interest rate is expressed as an annual percentage of however much of the loan remains to be paid. For example, if you took out a $10,000 car loan with an interest rate of 8.75 per cent, you would be charged 8.75 per cent of $10,000, or $875 of interest per year. But if you then reduced the outstanding loan to $9,000, your annual interest bill would be 8.75 per cent of $9,000, or $787.50.

What is an establishment fee?

Some lenders will charge you an establishment fee, or one-off upfront fee, to cover the cost of setting up your car loan.

What is a finance broker?

Finance brokers help borrowers organise car loans with lenders – that is, they act as middlemen between borrowers and lenders. While lenders will only recommend their own products, finance brokers recommend products from a range of lenders. Finance brokers need to be accredited with a lender to do business with that lender; a typical broker will be accredited with between 10 and 30 lenders. Finance brokers generally don’t charge consumers; instead, they receive commission payments from lenders.

What is an asset lease?

An asset lease, also known as a finance lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

What is a CHP?

A CHP, or commercial hire purchase, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

What is collateral?

Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So if you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is proof of residence?

Before giving you a car loan, lenders will ask for proof of residence – documentary evidence that you live where you claim you live. Lenders will typically want some combination of utility bills, bank statements, mortgage documents or driver’s licence. The reason lenders want proof of residence is to verify your identity and credit history.

What is a finance lease?

A finance lease, also known as an asset lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back.