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Used car pricing trends in Australia
News

Used car pricing trends in Australia

Cars are depreciating assets, at least most of them.

That’s no surprise, but the thing that has been unexpected in recent years is how much more cars have been holding on to value than forecast.

In many instances cars are worth more than they were a year ago, although there are already signs that the trend has peaked.

Prices increasing

Used car values have increased, some more than others.

SUVs and utes have been solid performers, for example. That’s no surprise because they’re the darlings of the new car market. In the era of lockdowns and hard state borders, Australians haven’t been able to fly as easily, making a home-grown road trip all the more appealing. Cue the purchase of a ute or SUV.

Prices for some collectible cars have also skyrocketed.

Aussie-made V8s are near the top of that list. Following the demise of locally-made muscle cars it seems some people want a noisy V8 blast before petrol prices eventually make them unappealing.

It could also be fueled by an acceptance that the V8 is on its last legs. Electric cars are barging their way onto the market and some buyers seem to want to get the high octane thrust of a V8 out of their system.

But not all cars are booming. Instead they are following a more gradual depreciation not quite as steep as it has been traditionally, but one that is still heading south.

Wholesale versus retail

Much of the media reporting of booming used car values has referred to wholesale values.

But in much of that reporting that crucial detail has been hidden in a well-placed asterix or underplayed.

What cars sell for at the wholesale level – often at auctions or between dealers – is much less than they sell for to private customers, at which point the car may have had minor repairs or updates to prepare it for a second life.

Buying at auction has its risks – often you can’t even perform a test drive - and the prices reflect that risk.

The perfect storm for cars

An analysis by Moody’s Analytics in 2020 blamed used car resilience on “a perfect storm of not enough vehicles being available and strong demand for private transportation”.

Following the doom and gloom of the first COVID-19 lockdowns in 2020 it quickly became apparent the economy was still ticking along nicely, albeit propped up by government support.

People still wanted cars, but many of the importers had slashed their orders. Others were struggling to get hold of stock due to overseas factory closures and a shortage of semiconductors (or computer chips) curtailing manufacturing.

And many people had decided they weren’t keen on catching a train or bus and decided an extra car would help with getting around town.

It meant cars were as popular as they’d ever been – and the demand flowed through the new and used car markets.

As Moody’s points out: “For every vehicle not bought, there is one fewer traded in.”

Most people have also not driven as far throughout 2020. So, in some instances their cars haven’t needed replacing. So, again, that leads to fewer cars on the used market.

New and used work in harmony

The new and used car markets are inextricably linked.

Prices of new cars have been increasing for the past decade. It’s now tough to find a small car for close to $20K, and many popular mid-sized SUVs are approaching $40K.

Luxury brands BMW and Mercedes-Benz have been edging up the prices of popular models such as the 3-Series and GLC.

Alternatives to those in the used car market will typically experience a bounce in their values

Those price increases encourage some of those new car shoppers to look at a near-new car as an alternative.

More people haggling over the same car prompts the seller to ask more money for it.

And those people who were originally looking at a near-new car may now have to look for a slightly older one.

The effect trickles down through the entire used car market and as a result prices have been resilient.

But perspective is required. Those headline figures of 30 and 40 percent increases in used car values are at a wholesale level and they don’t touch every car.

And, obviously, a 10 percent increase on a $5000 car is a lot less of a financial windfall than a 10 percent gain on a luxury SUV.

Don’t forget the trade-in!

Most used car buyers are stepping out of another used car.

It’s worth remembering that if you’re trading a car in you should benefit from the buoyant used-car market. All of which should make the changeover price – the difference between the one you’re stepping out of and the one you’re stepping into – that little narrower.

And as Moody’s Analytics noted in an October 2021 report, the used car market appears to have peaked.

The company says wholesale “prices have fallen by almost five percent since the peak reached in July”, even if they are still “elevated”.