Australian wholesale new vehicle prices have fallen 12 per cent from their peak in May 2022, as normalcy returns to the wider supply chain and demand for beloved cars cools.
The S4 Used Vehicle Price Report found that used car prices have now been called up for seven consecutive months, and in January 2023 they experienced their first year-on-year decline since May 2020.
Additionally, used car prices are expected to continue to come back down to earth in 2023 as the supply of new cars improves, and demand weakens due to higher borrowing costs and inflation.
In other words, the two big factors driving up used car prices – the demand for them due to the lack of new car stock, and the considerable borrowing power of households – are negated.
The findings come from financial intelligence company Moody’s Analytics, which issues regular reports on wholesale used car prices using its numerical price index model.
On the supply side, fewer people will switch to used cars with more new stock entering the market. Vehicle production in Japan (our largest source of cars) was 35 percent above 2021 levels in October last year, and motor car imports were up 29 percent in Q3 YoY.
“For 2023, we expect that the supply of new vehicles will continue to increase, further reducing pressure in the used market,” added the Moody’s Analytics report.
The report also concluded that China’s move away from a zero-COVID policy would be a positive development for the supply chain: with short-term fluctuations following a spike in infections before pre-pandemic chain management returns.
On the demand side, the market for new cars is expected to be weak this year as Australian households are largely under pressure from rising interest rates: the Reserve Bank has injected a rate hike of 300 basis points from May 2022.
Naturally this cools the housing market, which supports the borrowing power of people hunting for upgraded cars. Citing ABS data, Moody’s analysts forecast a peak-to-trough decline in national house prices of 13 percent, with the trough occurring in mid-2024.
Australia’s GDP growth is forecast to slow to below 2.0 per cent in 2023 from an estimated 3.5 per cent in 2022, with weaker household consumption a key influence – not only due to borrowing power but also rampant inflation and below-CPI wage growth.
Overall, Moody’s believes average used car prices will fall a little more than 10 percent annually, though for context its data shows they are now about 54 percent above pre-pandemic levels. In other words, there may be a new normal.
“Manufacturers will remain hesitant to oversupply the market given the relatively large global economic problems. This will keep used vehicle prices well above pre-pandemic levels, with price stabilization occurring in 2024,” the report claims.
“However, if supply returns faster than expected and consumer demand weakens significantly amid rising interest rates and broader cost-of-living increases, used vehicle prices have room to fall faster than the current baseline outlook.”
That, naturally, depends on the type of vehicle, and how much competition it has.
MORE: Australian used car prices have fallen for six consecutive months