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.”

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By submitting this form, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Based on your details, you can compare the following Car Loans

Advertisement

Learn more about car loans

What is a chattel mortgage used for?

A chattel mortgage is usually used to buy an asset - such as a car - for your company for business use. Relatively similar to regular mortgages, a chattel mortgage structure is based on a lender providing you with funds to purchase an asset while registering their security interest on the Personal Property Securities Register (PPSR) for the life of the loan. In this case, the asset is known as the chattel. After the loan has been repaid, you will have full ownership of the asset. 

A popular finance option, a chattel mortgage is usually preferred by self-employed or small business owners, due to flexible options available for repayment. In some cases, you may get 100 per cent of the cost of the asset, which means that no upfront deposit needs to be put down.

However, it’s important to note that a chattel mortgage is not regulated under the National Consumer Credit Protection Act. It’s therefore important to seek advice about the product and fully understand the agreement terms before signing.

How do I get car loan approval from Bankwest?

Bankwest offers loans for cars that are less than seven years old or have a minimum value of $10,000. Loan terms are between three and seven years  at a fixed interest rate, with the option to make extra payments without any extra charges.

To apply for Bankwest car loan pre-approval, you’ll need proof of your identity and income. You’ll also need other documentation, such as insurance certificates and registration papers. 

Once you receive conditional approval and have selected your car, you may have to provide supporting documents to proceed to the next stage.

How to get pre-approved for a credit union car loan?

Getting pre-approval for a credit union car loan can make the process and paperwork required to buy a car more streamlined and less stressful. You can apply for pre-approval for a credit union car loan, online or contact your credit union. You’ll be asked to provide relevant documentation regarding your income. After you submit your application, your credit union will review and evaluate it along with the documents you submitted. If you meet the eligibility criteria, your loan will be pre-approved for a specific amount.

With pre-approval for a credit union car loan in hand, you can negotiate your new car’s price with peace of mind you have the funds.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

How to apply for pre-approval of a car loan from RACV?

If you’re planning to apply for a car loan with RACV, the best way to start is by having a clear picture of your requirements. By getting pre-approval on your car loan, you’ll be able to go shopping for your new car with a definite budget that will help you narrow your search. Once you’ve decided to buy a car with the help of a loan, you may have even identified the type of car you would like to purchase, you can seek pre-approval on a car loan from RACV. 

You can apply for pre-approval by filling out a form online and uploading the relevant documentation regarding your identification, income, debt and credit history. Once you submit your application, RACV will review and verify the documents. If you meet their eligibility criteria, you will get pre-approval for the amount they are willing to lend to you. With this pre-approval, you can go car shopping with the confidence of knowing what you can afford.

What do I need to apply for a chattel mortgage?

Chattel mortgages are a form of secured car loan for businesses. The lender will set up a mortgage, while you take the car’s ownership. When the mortgage is paid off, you own the car. The borrowed amount is repaid through regular installments over a fixed period of time.

To qualify, you’ll have to meet the following chattel mortgage requirements:

  • The car should be used for business purposes at least 51 per cent of the time.
  • You must hold a valid Australian Business Number (ABN).
  • You must show you can service the loan on time
  • Identity proof
  • Financial records, such as profit and loss account and balance sheet
  • Details of the vehicle you want to buy
  • Bank statement for your business

What is a chattel mortgage fee?

A chattel mortgage fee is an amount you’ll pay the lender to procure the funds for a chattel mortgage.

You can use a chattel mortgage to finance vehicles used for your business at least 50 per cent of the time. It’s similar to a secured vehicle loan. The lender will give you the funds required to purchase the vehicle whilst you retain the ownership. The finance company then holds a mortgage on the vehicle, using the car as the security, until you repay the loan amount. At the end of the loan term or once you’ve paid it off, the lender will release the mortgage. Alternatively, you can opt to trade-in or refinance the residual value.

What is CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.

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 a dealership?

A dealership is a car yard or a place where cars are sold.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

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 depreciation?

Depreciation is the reduction in the value of 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 vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.