We’ve always been told cars devalue rapidly, but the booming secondhand car market shows this may not be true in a pandemic
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Last modified on Sat 29 Jan 2022 14.03 EST
It was once a rule as sure as gravity: buy a 2012 Toyota in January and it would be worthless by December.
But if you’ve bought a secondhand car anytime over the last two years, it should be pretty obvious that rule hasn’t held true during the pandemic as prices have been driven up by 50% on some models in Australia and overseas.
So as some people struggle in the booming secondhand car market and others cash in, how did this happen? And what does the future hold?
Why did this happen?
Details may differ by model and manufacturer but the average car has about 30,000 components, and with modern carmaking having evolved to be an intricate global dance – with parts made in one country and shipped to another for assembly – the industry depends on its ability to move things around.
Since the start of the pandemic global supply chains have taken a hit, making tight carmaking logistics shaky. Competition for cargo space and a shortage of shipping containers has led to long delivery times for people who have bought a new car.
A global computer chip shortage – sometimes referred to as “chippaggedon” – means carmakers are competing with other industries for chips. Modern cars can have more than 1,000 chips – for control of everything from mirrors to airbags and tyre pressure gauges.
Faced with long delivery times and a perceived risk of taking public transport due to Covid, many people have turned to the secondhand car market. With fewer cars and more people wanting them, a seller’s market has developed.
How long has this been going on?
From the moment the pandemic began – and certainly long enough for insurance company Allianz to run and publish the results of a survey in November 2021 showing Australians were confused and overwhelmed as they navigated the market.
What are some examples?
It depends what you are in the market for, as there are many variables. According to CarsGuide, those shopping for an early 2011 Ford Ranger would be paying $24,000, up from $18,000 in June 2020 – a 40% increase.
In the small car market, a $10,000 2021 Mazda3 now costs about $12,000, which is more modest but still large, particularly for families looking to buy a new driver their first car. While a Mazda3 that cost $26,000 when new in mid-2020 can be bought secondhand for about $34,000.
Another classic example is the Land Cruiser. At the start of the pandemic those who couldn’t fly overseas decided it might be worth buying a 4WD and driving around Australia. Unfortunately, many people had the same thought at the same time and the price jumped as there weren’t that many around. That has had a flow-on effect for work vehicles for tradies, farmers and mining companies. For example, dual-cab 79 series GXL Land Cruisers, which usually retail for about $80,000 new are now being sold secondhand for more than $100,000.
How long will it continue?
“That’s the million-dollar question and it keeps getting pushed out,” says James Voortman, chief executive of the Australian Automotive Dealers Association.
“At the moment we’re getting told by manufacturers around the world, we’re hopeful the semiconductor shortage will start to improve by the middle of this year.”
As global supply chains sort out their kinks, prices are expected to fall over 2022 – though there are conflicting views on how far.
One school of thought says that because people buy cars when they need them, they are slow to buy new ones, meaning the supply of available cars is likely to grow quickly. This will lead to a slow fall in prices.
Global consultancy firm KPMG is however forecasting a 30% reduction in current prices in the US by the end of 2022 as carmakers begin delivering new cars to market. Though the analysis may be focused on the US, as the problems are global they can be generalised to Australia.
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Is there any downside?
Any correction is not without risk. KPMG’s report says that any drop in prices is good for those looking to buy but those who bought over the last two years will be left with a vehicle worth less than they paid for. While this may make it harder for them to make their next vehicle purchase, others who relied on a loan may find themselves underwater.
However until prices actually begin to drop, this is an issue on the distant horizon.
I’m thinking about buying a secondhand car. What should I do?
Wait six months, and see where things land – though if you can wait longer, maybe give it a year. If you absolutely have to buy now, remember that you don’t need to just accept the sticker price and it is OK to haggle. Depending on the circumstances and your approach it might be possible to bring down the price by 20%.
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