Used-vehicle prices in Australia are now 25% higher than they in August 2019, despite the COVID-19 pandemic and recession says a September report authored by Moody’s Analytics senior economist Michael Brisson.
The annual growth rate broke the previous record set in December 2009, when prices rose by 20% following the 2008 global financial crisis.
Wholesale used-vehicle prices as tracked by the Datium Insights – Moody’s Analytics price index reached a record high in August 2020.
The price index, which tracks Pickles’ wholesale market transactions while controlling for the mix of vehicles sold increased by 7% in August.
This is an acceleration in price gains compared with the 4.7% month-over-month price increase in July.
Brisson says the increased demand for vehicles is coming from people who are shunning ride share services and public transportation, either out of fear of contracting the virus or not wanting to deal with the hassles of increased precautions.
In addition to the greater demand, supply concerns continue to hamper the automotive market according to Brisson. Dealerships have complained about not having enough inventory coming into port to keep up with the demand for new vehicles.
Additionally, in the early days of the lockdown, vehicle leases were extended by six to 12 months and those vehicles are yet to make their way back to market, and banks are still forgoing repossessions, limiting another avenue for vehicles to enter the wholesale market.
Brisson says the deluge of new customers in Australia to the used-vehicle market has pushed up prices for both passenger cars and utes.
Both segments have experienced tremendous gains since the lockdowns began to be lifted in May. The ute segment which includes SUVs and light trucks, has increased by 32% from the previous year. The wholesale passenger car market increased by 23% during the same period.
Brisson says this stronger gain in the ute market is a deviation from the stagnant and falling prices in 2018 and 2019. During this period of truck weakness, car prices increased in almost every month.
He says the strength of utes during the pandemic has been supported by lower petrol costs during the downturn. The decline in petrol prices can reliably predict that fuel-hungry vehicles such as trucks and utes will rise in price.
Brisson says this is because lower fuel costs decrease the overall cost of vehicle ownership to a greater degree for the less fuel-efficient vehicles. He says history shows the two have an inverse relationship, fuel prices down, ute prices up and vice versa.
He predicts the gains for utes compared with passenger cars will likely slow, as fuel prices have come back from lows set earlier in the year.
Brisson believes that price gains should slow as supply increases with sellers seeking to take advantage of the high prices and COVID-19-realted demand gets wrung out, but he says the extraordinary gains are not expected to quickly turn south.
He says the rise in prices has shown to be persistent over the past three months and given current fundamentals, will likely stay elevated with pre-pandemic values.
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