Following the stratospheric price increase for used vehicles during the COVID-19 pandemic, it appears that has all come to an end with seasonally adjusted used-vehicle prices continuing to fall in Australia. Increased global production of new vehicles is improving supply, albeit at a glacial pace, alleviating price pressures in the used-vehicle market.
According to Moody’s Analytics, Truck/SUV prices continue to fall much more than passenger cars because of significant cuts in the production of passenger cars in recent years as supply-chain constraints saw manufacturers prioritise larger vehicles with higher profit margins.
On the supply side, according to the Federal Chamber of Automotive Industries (FCAI), last month registered the most new-vehicle deliveries in July. These numbers are a reflection of the easing of supply-chain disruptions. Many of the vehicles sold in July were ordered several months ago and delivered only recently.
Although global vehicle production has not returned to pre-pandemic levels in Europe and Asia, there has been a significant improvement. An additional lift to global new-vehicle supplies over 2023 is expected to come from China’s swift abandonment of its zero-COVID policy. June’s Chinese automotive production is already 60% higher than at the start of the year. Moreover, according to the FCAI, vehicles produced in China are gaining importance in the Australian market, with sales increasing 130% compared with July last year.
Tighter financial conditions combined with the increased supply of new vehicles will relieve the inflationary pressures in the used-vehicle market for the rest of the year. Moody’s Analytics projects that used vehicle prices will fall through 2023 and into 2024 as the supply of vehicles increases and demand slows. Prices are expected to fall 9.1% in 2023 and a further 8.4% in 2024 before stabilising in 2025.
Nevertheless, the risks to our forecast are weighted toward the downside. If global economic malaise causes the Aussie economy to perform worse than expected, drastic declines in demand will push prices down further and faster than expected. On the other hand, the risk has increased that demand may not cool as quickly as expected, keeping used-vehicle prices higher for longer. If production and imports of new vehicles do not keep improving, the expected fall in used-vehicle prices could be shorter and shallower than expected.
