The global car industry is recovering from its biggest setback ever, and Australian used cars are being sold for the highest prices ever.
According to data from Moody’s Analytics, used cars were 65% more costly in the first three months of this year than in 2019, and 18% more costly than at the end of 2021. Some car sellers are achieving the same level of profit of close to the price they paid when they first purchased their cars, while others are paying as much as new-car prices for old cars that have been well used.
James Ward, director of content at Drive, said, ‘We have never seen anything like this.’ ‘It’s bananas,’ he added. Long waitlists on even standard vehicles are causing problems, resulting in a 12- to 18-month wait. We’ve never witnessed anything like it. Seeing used cars increase in value is another sign of the problem. In many cases, you may sell an 18-month-old car for the same price you paid for it. Certain cars, including the popular Suzuki Jimny, are fetching unprecedented amounts of money, Ward said.
He said many advertisements listed the small four-wheel-drives as being worth $50,000 when in fact they were only worth $30,000 second-hand.
A ute in Ballarat, Victoria, sold on Facebook in February for $1500 less than its purchase price eight years prior, despite the fact that it was in excellent condition.
The vehicle seller reported “that he had purchased a 2008 Toyota Hilux in 2014 for $22,000 with 170,000 kilometres. In February 2022, he sold it for $20,500 with 225,000 kilometres.
The ute’s seller thinks that he could have gotten someone to pay more for his vehicle if he had tried harder when selling it. The $1500 loss on the car over eight years is pretty good,” he said.
Should people consider selling their cars now, given the unprecedented prices being paid on the used car market? What should they do if they want to buy?
Ward gives the following advice:
Why are second-hand cars costing so much?
The demand for secondhand vehicles is so high because there has never been such a serious shortage of new cars worldwide before. car manufacturers stopped ordering as many car parts when the COVID-19 pandemic hit, thinking sales would slow down. This is the reason for the lack of cars.
During the pandemic, people had more money to spend on cars because they were unable to travel or spend their usual amount, resulting in an increased demand for cars.
‘There was a big demand for vehicles, and production was down,’ Ward said.
The demand for larger cars due to the rush of people having babies during the pandemic is what led to the need for more cars.
Caroline Springs is where Matthew lives, and he was left in that condition. ‘Because we were having a baby, we needed to get a bigger car,’ he said.
“We purchased a brand new Mazda CX-5 in November and had to wait until March to receive it.”
More than 120 people have contacted him in the past week to buy his third-hand Toyota Yaris, which he is now trying to sell on Facebook.
People working from home and ordering more computers and keyboards led to semiconductors manufacturers seizing up all available semiconductors, which are vital parts in cars. The global car part backlog was therefore exacerbated. The car manufacturers had to wait for more parts to be produced in order to place car orders. The huge backlog of orders is still being worked off by the market.
Is it time to sell your car?
“Make sure you have a plan for what you will do once your car is sold before you consider selling your car,” Ward cautioned. “If you’re selling in a high market, you’re going to buy in a high market,” he said.
Pre-locking in the price and timing of your next vehicle purchase is what he recommended for those looking for a replacement vehicle. “It’s exactly like property, you run the risk of selling home and having to buy in a case where your net changeover is not great,” Ward said.
Now is the time to sell those cars if drivers no longer need them, he said.
‘It’s never been a better time to sell,’ he said.
Advice For Car Buyers At The Moment
Be careful about purchasing a vehicle, because there are financial pitfalls to watch out for, Ward warned. ‘At present, you must be very very careful when purchasing a car,’ Ward said.
Despite the long wait times foreseen, he advised buyers to put down deposits to get on waitlists for new cars. A high volume of customers on the waiting list can cause a backup, says Ward. People frequently change their minds or decide not to purchase an item, he says, making the line move faster. Buying a new car would not be as risky as purchasing a used car at the moment, he said.
The ‘massive discrepancies between what is the sort of value you would expect to pay and what people are asking for are what we are seeing with second-hand cars, he said.
Be very cautious about paying more for a car than you should, especially with interest rates rising.
‘ Because if the market drops, you will be in a terrible position.’ Buyers who can’t wait for a new car should look for used cars with good value, Ward said, but they should research carefully and be open to forgoing the exact colour or model (Ward, 2018). He emphasised that you should not pay too much. “You should not buy a car that feels expensive for what it is.”
Ward also advises anyone buying second-hand to look for cars that still had warranty left on them. A seven-year warranty is what a three-year-old Kia would have had if it was new when you purchased it. So it means the warranty has four more years to run.
“I would look to those cars because they are the ones that offer the most protection if something goes wrong.”
Prior to purchasing a used vehicle, he recommended getting a complete service history and a certified Pre Purchase inspection.
Check our Pre Purchase Inspection Report
Also, read our article: Don’t Skip the Pre-Purchase Inspection
Will the prices of used cars ever go down?
Car prices are hoped to return to normal in 12 to 18 months, according to Ward. ‘We certainly envisioned this a year ago,’ he said, ‘because we were not aware of the Ukraine situation.’
The car parts industry is being affected by the Russia-Ukraine military conflict, creating further semiconductor shortages.
“We are really hoping that things catch up within the next 12 to 18 months – but that’s assuming everything sort of continues on its path,” Ward said.
A little correction in the car market, he said, might be achieved by higher interest rates, reducing the number of buyers for the pricier models.
People will start looking for cheaper cars because demand will slip,” he said.
We’ll get back into the prices we were familiar with a couple of years ago, is what he said.
Used car prices are likely to remain elevated in the near term, according to Moody’s Analytics.
Pre Purchase Car Inspection
To buy a used car with confidence and especially during this time when used car prices are high, it’s best to have it inspected by a professional car inspector.
German Precision offers Pre purchase Inspections across Melbourne and regional Victoria, with over 35 years of experience in numerous premium vehicle businesses.
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