The price of used cars skyrocketed in 2021, what does this mean for buying a car in 2022?
Prices for almost every aspect of Australian life have seen a huge hike in the last two years. Petrol, groceries, building materials, used cars and more are costing far more today than they did pre-pandemic. World events of the last few years have made the cost of everyday living jump unbelievably high.
Shortages of new vehicles due to COVID-19 delays led to a massive increase in the price of used cars. COVID-19 created several supply chain issues for automotive parts, most notable being the global shortage of semiconductor chips, which was further exacerbated by international shipping delays. These unavoidable issues meant fewer new cars were being made and delivered to customers and dealerships in Australia. This scarcity of used cars led to demand far outstripping available stock, leaving buyers paying top dollar for used assets, driving the price of used cars up astronomically.
The market in 2021
2021 saw the worst of COVID-19’s impact on used car prices, with the effect dipping marginally in the third quarter due only to strict lockdowns across Australia. Once these restrictions eased, the demand for vehicles increased again in price. Moody’s Analytics Price Index report noted that heightened prices would stabilise for the foreseeable future.
‘Barring any unforeseen setback in the Australian economy, prices will remain well-supported by steady demand and a lack of inventory on the new and used-vehicle market.’
The volume of new vehicles delivered to dealerships in January had been insufficient to meet strong consumer demand. Factory orders were stretched out and the turnaround time of new assets had a 6 to 8-month lead time. Despite some predictions of a turnaround of the industry in late 2021, supply chain disruptions resulted in fewer vehicles delivered to dealerships, the new-vehicle supply situation had no meaningful improvement by the end of the year.
The market in 2022
As global supply chains sort out ongoing issues, prices are expected to fall throughout 2022. Though there are several conflicting views on just how far the market will fall. There are many factors that could potentially bring prices down, however most of these factors rely solely on the expectation that the market will simply pick back up where it left off pre-pandemic.
In normal times, the used car market would be equalised once automakers were back to producing a regular quantity of vehicles. However, rising interest rates to curb inflation may also reduce consumer demand, placing downward pressure on pricing and bringing back aggressive incentive spending which would effectively level the market.
The size of the used car market may plateau, as sales of new electric vehicles were up +94% at the same time last year and petrol car sales were down -12%. This could indicate that there will still be high demand for used petrol cars in Australia for buyers that aren’t ready to make the switch to EVs. New car sales for January 2022 were down 5% on January 2021 results, this can only indicate a continuation of inflated used car prices. All signs point towards a slow descent into pre-pandemic market prices that will likely move incrementally.
The market in 2023 and onward
The market will likely stabilise and we will see a reduction in prices, though this depletion is out of the hands of Australian businesses and will depend fully on offshore manufacturing to provide a timeline. With countries opening due to higher vaccination rates and the stress on semiconductor supply chains easing, more new cars should be available from 2022 to early 2023. This will lower the incentive of buying used cars in Australia and will likely result in a price drop in the used vehicle market.
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