For over the past six months, used-vehicle prices have been rapidly decreasing in Australia but the rate of decline could be slowing, recent data shows.
Although still dropping, from December to January the rate prices declined has slowed to an overall average of 0.2% (-2.6% y/y), with trucks and SUVs being the hardest hit currently, according to the Moody’s Analytics Used-Vehicle Price Index.
January marked a slowdown in the price fall, with both passenger cars and trucks/SUVs prices only decreasing around 0.2% m/m holistically.
It’s worth pointing out however, that vehicle prices are still not near pre-pandemic levels, remaining 53% higher than the December 2019 level and prices have come down 11% since their all-time peak in May 2022. There is a strong indication that this will continue in the near term, on the back of better supply-side conditions and as global demand slows down.
The semiconductor shortage continues to ease too with October producing the largest month-to-month semiconductor lead time decline in several years (falling to around 25.5 weeks) but still far longer than average pre-pandemic lead times. As a result, global vehicle production has not returned to pre-pandemic levels in Europe and Asia, but it has improved, ie, vehicle production in Japan was 35% above 2021 levels in October but remained 11% below 2019 output.
During the third quarter, Australians imported a total of $7.308 billion worth of motor cars, according to the Australian Bureau of Statistics, a 29% increase when compared with the third quarter of 2021. Moreover, the Federal Chamber of Automotive Industries has reported that January new-vehicle sales increased 11.9% year on year, representing the best January level since 2018. With more new vehicles being delivered, supply pressures in the used market will continue to be relieved.
In terms of vehicle demand, higher borrowing costs and high prices for non discretionary items such as food and fuel are undoubtedly causing issues for households. On top of this, the Reserve Bank of Australia has already injected 300 basis points’ worth of rate hikes since May 2022 and a further 25-basis point hike is expected, with further monetary policy tightening on the way.
Anticipating increased supply and decreasing demand leads to projections that used-vehicle prices will continue to fall through 2023, Moody’s Analytics is expecting prices to fall by slightly more than 10% over the year.
