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Used car prices swell by almost 30 per cent during COVID-19

Used car prices swell by almost 30 per cent during COVID-19

Used car prices have swelled by a record 30 per cent following a stock shortage, but economists are suggesting now might be the time to sell as the rollercoaster ride appears poised to take a turn.

Cars sold in September on the auctions platform Pickles fetched prices that were 29.9 per cent higher in September when compared to the same period a year earlier, according to the Datium-Insights Moody’s Analytics Price Index.

The 3.8 per cent monthly increase was the smallest gain posted in five months of consistent rises, Michael Brisson said, senior economist and associate director at Moody’s Analytics.

“All else being equal, now is the best time to be selling a used car, truck, SUV or ute on record,” Mr Brisson said.

Take a 2017 Ford Ranger with about 115,000kms on the clock, for example. Where the average sales price was $24,000 in May, a comparable model fetched about $31,000 in August.

Lower running costs contributed to the trend of people spending less on passenger cars than they did on SUVs. Passenger car prices grew by 2.1 per cent, where SUV and truck values increased by 8.7 per cent.

The demand is about to be met with supply

The upswing in used car prices was yet another flow on effect from the COVID-19 pandemic, after it temporarily shut down worldwide vehicle production in March.

And this shortage of new cars halted people from trading in their old ones, ultimately propping up the prices of the used cars available for sale.

“The limited sales and thus limited used-vehicle supply continue to support the price increases in the wholesale used-vehicle market,” Mr Brisson said.

Meanwhile, demand for cars held strong as people shy away from travelling on public transport due to fears of catching and transmitting the COVID-19 coronavirus.

Looking forward, Mr Brisson said he expects used car prices to stop rising.

“The unprecedented and unexpected ride that used-vehicle prices have taken over the past five months will come to an end,” he said.

“Still, the price gains that have been realized are not expected to be given back quickly.

“Once dealers know what they can get for a vehicle they are not likely to drop prices back down without a major shift in market fundamentals.”

People are looking to spend, but are they looking to spend on cars?

Commonwealth Bank, Westpac and ANZ bank economists have noticed a striking rebound in people’s confidence to spend money while the country continues to charter the unfamiliar waters of a pandemic.

But people’s appetite to buy cars has “softened” in September, Stephen Halmarick said, chief economist at CBA.

“Motor vehicle spending intentions lost momentum again in September, coming back down off their Covid-19 highs seen in June,” he said, in the bank’s Household Intentions Spending report.

“While both the number of personal loan applications and value of motor vehicle transactions increased marginally in September, the number of Google searches was down on the month.”

A softening in demand for used cars would contribute to stagnating car prices, supporting the forecast made by Moody’s Mr Brisson.

30 months of falling new car sales

For 30 straight months, sales of new cars have been on the decline.

About 68,985 new vehicles were sold in September, according to the Federal Chamber of Automotive Industries (FCAI) -- a drop of 21.8 per cent compared to the same period a year earlier.

Chief executive Tony Webber said the decline was owed to natural disasters, unfavourable exchange rates, a stock shortage and an uncertain economic future.

But the prospect of scrapping the responsible lending obligations of banks could help the industry turn the tide in their favour, as it would make it easier for people to gain finance.

“Freeing up restrictions around financial lending will act as a stimulus for Australian industry,” Mr Weber said.

“As we strive to recover from the COVID-19 pandemic, a more efficient flow of credit to consumers and small business will be a strong stimulant to the economy.”

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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