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Why The Price Of Used Cars Is Not Coming Down In 2022

Mar 21, 2022 4:50:41 PM

We all know new cars devalue quickly, or at least we used to. The rule doesn't seem to hold true in a post-pandemic world. As more and more people took to buying a 4WD during lockdown, the price of used cars soured—and it's not coming down.

Why Are Used Car Prices Up?

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The last few years have seen a considerable drive in used car prices. The average used car price is up by about 20 to 30% across Australia—even as high as 50% for some models. So, what's driving this demand for vehicles? Will prices come down eventually?

Covid

When the pandemic hit and the world shut down, many Aussies' international holidays were put on hold. Without flying abroad, many of us turned to road trips, driving through our own country in the safety of a private vehicle. Unfortunately, everyone else had the same idea.

Moreover, with covid infection risk, we turned away from public transport. With so many people purchasing used vehicles within a short time, it is clear supply couldn't keep up. When demand overtakes supply, prices rise.

Furthermore, it’s not just cars people want. Demand for caravans, boats, and trucks has skyrocketed as well.

But we're at the tail end of the pandemic now and if you are thinking surely, prices should go down as we recover, think again. The reality is, prices won't be coming down any time in the near future, in fact, car prices are continuing to rise.

Used car loan

 

Supply and Demand is Driving Car Prices Higher

Car making is far more intricate now than ever before. Even if you buy a German car, it won't have been built solely in one German factory. The average car has about 30,000 different components, each made in other parts of the world. Pieces are made here and there, while the parts are assembled in another country. The industry relies on movability.

So, when the world ground to a halt in early 2020, shipping and deliveries struggled to keep up with the rising demand. Competition for cargo space and shipping containers drove new car prices up. As new cars got more expensive, buyers turned to the cheaper alternative: used cars increasing demand and pushing up used car prices.

Shortages

On top of rising demand and slow production, the world has faced a shortage. Namely, a global computer chip shortage. Cars rely on hundreds, if not thousands, of computer chips. Everything, from your airbags to your wing mirrors, relies on computer chips. As every industry competes to get hold of the few chips, prices go up.

The culmination of growing demand, slowing production, and supply shortages have hit the car industry hard. Each car is more expensive to make. Therefore, buyers must pay the price.

What About New Car Prices?

 

With the global chip shortage and reduced global movement, new car prices have skyrocketed in the last two years New car prices average about $40,729, according to Canstar.

According to Forbes, US new car prices have increased by 12.1% in the last year. While this study is US-specific, we might expect a similar trend in Australia. After all, building new cars is a global effort. The whole world is witnessing rising car prices.

Are Car Prices Going Down?

It would not be unreasonable to assume that If the pandemic is subsiding, we might expect car prices to drop again. After all, normal levels of production have resumed. Sadly, it's not true. Prices continue to go up.

Industries hit by covid will take time to recover. The car industry won't bounce back overnight. Also, many consumers have maintained a tight budget over the last two years, with many Australians saving their big purchases for a post-pandemic world. Therefore, demand jumps again keeping prices high.

According to Carsales.com CEO Cameron McIntyre, “they’ll be sustained at a high level for some time…the majority of this year.”

Although the shortage of computer chips is predicted to begin subsiding this year, it will take a while for consumers to see flattening prices.

When Is the Best Time to Buy Then?

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It's unlikely we'll see used car prices drop anytime soon. With new cars so expensive and difficult to get hold of, many Aussies are sitting tight on their current vehicles. So, it's likely to take a while for used car prices to reach pre-pandemic levels.

Choosing when you buy a used car is up to you. While prices are high now, they might not always remain so. Ask yourself how urgent your need is. If you can wait a year or more, it might be worth holding out to see if car prices drop in 2023. However, if you can't wait that long, it's probably best to buy sooner rather than later.

Before purchasing a used car, ensure you research the market. Compare car prices, makes, and models and organise finance pre-approval first so you know your purchasing power. To discover your purchasing power and exactly how much you can borrow complete our online application. It only takes a few minutes and at the end we will deliver to you real finance rate offers from real lenders. Our lender offers are valid for 90 days so you will have more than enough time to find your perfect vehicle.

Case Study

The price you pay for a used car today depends on what you're in the market for. For example, if you wanted a 10-year old Ford Ranger, you could expect to pay $24,000. The same used car would have cost $18,000 in 2020. It's gone up by 40%. The same car brand new in 2022 costs around $60,000

Bottom Line

Once upon a time, you might expect your new car to depreciate by 10 - 15% a year. However, in 2022, a used car might actually increase in value from its 2020 price. If you want to purchase a used car, it's best to research the market to determine your best options. The pandemic has severely affected car prices, an impact that's unlikely to subside any time soon.

If you need a car, there’s no better time to buy one than right now.

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