Australian wholesale used-vehicle prices bucked their downtrend in the first month of 2024 which suggests the market might be returning to it’s long term seasonality which sees prices rise until Easter, and soften during the winter months before climbing again as the warm spring weather returns.
The Datium Insights-Moody’s Analytics Used-Vehicle Price Index settled at 159, a 0.2% rise over the month. That translated to a 7% year-on-year decline after December’s 7.8% year-on-year fall. While the index has trended lower from its peak in May 2022, prices remain elevated; January’s index was 49% higher than in the same month of 2019.
Yearly declines likely bottomed out in mid-2023; less-pronounced declines are to come as high base effects fizzle out. January marked the first monthly rise in the index since April 2023. But despite that jump, and the possibility of a few other monthly rises, the Moody’s Analytics forecast suggests that the downtrend will continue.
Prices have fallen at the same time as the supply of new vehicles into Australia has increased; the Federal Chamber of Automotive Industries reported that new-vehicle deliveries into Australia hit a record high in 2023. With high borrowing costs and inflation trimming spending on durable goods, subdued demand for cars has made the impact of growing supply more pronounced.
Moody’s Analytics projects that used-vehicle prices will fall as supply increases and high interest rates and still-elevated inflation erode purchasing power, softening discretionary demand.
After falling 9.3% in 2023, used-vehicle prices are forecast to fall 8.1% in 2024. Even so, used-vehicle prices will not return to pre-pandemic levels within the forecast horizon.
Outlook for electric vehicles
EV manufacturers dramatically ramped up production in recent years, and new competitors have broken on to the scene. Abundant EV supply mixed with tepid demand globally sent EV prices falling from a peak in mid-2022.
Lower prices for new EVs flow through to the used-EV market. This can be seen in the U.S., where used EVs are falling in price much faster than other used vehicles.
EVs have enjoyed remarkable growth in Australia, helped along by a host of new carmakers entering the market in the past few years. Help has also come from government supports—primarily the federal government’s National Electric Vehicle Strategy. A litany of incentives and initiatives to improve EV-uptake and provide EV-charging infrastructure has persuaded more consumers to dive into the market.
Global supply on the up and up
The global supply of new vehicles is rising, and this will continue to put downward pressure on prices in the used-vehicle market. Having dropped its zero-COVID policy in December 2022, strong auto production in China in 2023 allowed the country to overtake Japan as the world’s largest exporter of vehicles. Although Japan’s auto production increased in 2023, output was almost 10% lower than before the pandemic.
Restrained household demand
Australian households have been struggling against elevated inflation and rising borrowing costs since early 2022. These forces have eroded household incomes and the ability of Australians to shell out for big-ticket items, including vehicles. The Reserve Bank of Australia has hiked the cash rate by a cumulative 425 basis points during its tightening cycle. The high prevalence of floating-rate mortgages means that these tighter monetary policy settings are relatively potent when compared with the U.S., where 30-year fixed-rate mortgages are the norm. Moody’s Analytics does not anticipate more rate hikes, but a cut in the cash rate from 4.35% is unlikely until the September quarter. Thus, tight monetary conditions will keep demand subdued before a recovery takes hold from late 2024.
Strong population growth and a tight labour market are supporting demand. In particular, strong wage growth and constrained labour supply in some sectors have shored up incomes, preventing a bigger retreat in demand. Strong population growth is also propping up vehicle demand across Australia; above-average population growth was recorded across the major cities in 2024.
Moody’s Analytics estimates that Australia’s GDP grew 1.9% in 2023 and anticipates milder growth of 0.9% in 2024.
Downside risks hover
The risks to the outlook for the used-car market are weighted to the downside. Many major, developed economies are battling the headwinds of inflation and a speedy tightening of monetary conditions. This has contained demand, capping upwards pressure on used-vehicle prices. Meanwhile, new-vehicle supplies have been normalising. A more pronounced slowdown in domestic demand could push new- and used-vehicle prices lower and is the most prominent risk to the outlook.
On the other hand, as much of the global economy experiences promising growth in the second half of 2024, a more pronounced recovery in demand could see price growth reaccelerate, building on January’s modest monthly price gain.
Price outlook
Moody’s Analytics projects that used-vehicle prices will keep falling in 2024 amid the growing supply of new vehicles and a restrictive monetary policy that keeps a lid on demand. Prices are expected to fall 8.1% in 2024 before stabilising in 2025. Used-vehicle prices rose 27.5% in 2021 and 12.6% in 2022.
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