Moody’s Analytics has just published a new report on Australian used-vehicle prices, and it believes the July price spike in used cars will be temporary.
After falling for three consecutive months, the report says July brought a reversal with a price increase in the light vehicle segment.
However, while lighter vehicles showed strength, the price of heavier vehicles continued its downward trend and even accelerated its rate of decline from June to July.
The price increase can partly be explained by a slight uptick in demand, illustrated by the rise in the number of wholesale transactions registered during July.
The stage-three tax cuts, effective July 1, alongside other cost-of-living supports such as energy bill rebates and rent relief, have provided a subtle lift to households’ budgets. This could contribute to vehicle demand, exerting upward pressure on used prices.
In spite of the temporary price spike, Moody’s Analytics still predicts that prices will fall throughout the year. This anticipated decrease is primarily due to two factors: increased vehicle supply and the impact of persistently high interest rates.
Regarding supply, expanding global production of new vehicles is expected to alleviate the upward price pressures in the used vehicle market. In 2023, the Asian automotive industry experienced significant growth, with production increasing by 11.6% in China and 18.2% in Japan.
This growth indicates a strong recovery and expansion in automotive manufacturing—a trend likely to continue throughout the year. As new vehicle production surges, more vehicles are expected to enter Australia’s market, exerting some downward pressure on prices in the secondary market.
Monetary policy also plays a crucial role in shaping the used vehicle market. The combination of high prices and high borrowing costs has eroded disposable incomes and undermined consumer confidence, making households more cautious about significant purchases such as cars.
While Moody’s Analytics does not foresee further interest rate hikes, the cash rate’s reduction from its current standing at 4.35% is not expected until February 2025. High borrowing costs will negatively influence vehicle demand, limiting upward pressure on vehicle prices.
Moody’s Analytics predicts a 4.8% drop in used vehicle prices in 2024, following a 9.3% decline in 2023, due to weaker demand and an increased supply of new vehicles.
However, the forecast carries significant risks. A more prolonged than expected high-interest rate environment could further suppress demand by making auto loans more expensive. On the other hand, recent tax cuts and cost-of-living supports could have a stronger-than-expected boost in demand, putting upward pressure on prices.
Finally, any further disruptions in the supply chain or intensification of geopolitical risks could lead to price increases. Such adjustments would impact the new vehicle market and likely have a cascading effect on the used vehicle market.
