On the one hand, improving new vehicle supply is great news for corporate, government and rental fleet buyers desperate to turn over their ageing fleet after years of shortages.
However the changing market dynamics, back to something closer to the ‘norm’ before COVID struck, will impact bottom lines at the other end when it comes to disposal and remarketing.
The new vehicle market is up a healthy 10% year-on-year and is gathering pace, with three of the past four selling months yielding all-time record tallies, as backorders are cleared.
This correlates with a spike in the number of used and demonstrator listings in Australia’s car dealers, as punters taking delivery trade in their vehicles.
More dealer-based used supply points to ongoing used vehicle price cooling, which we are already seeing particularly on ‘newer’ stock. This naturally will impact wholesale prices through channels such as the major auction houses.
Data supplied by Cox Automotive Australia (CAA) – parent of Manheim and Kelley Blue Book valuations – shows that used car stock in dealers is up 32% YTD, and sits 22.5% higher than at this point in 2022.
The influx of used and demonstrator stock is the supply-side driver of reducing used car prices, alongside the demand-led factor of more new stock.
Indeed, the CAA weighted price index has declined consistently, down 4.2% since February 2023 and 4.7% since the August 2022 peak. This means prices of similar dealer used vehicles are just under 5% lower now than they were this time last year.
That may not sound like much, but from the fleet perspective it’s actually worse. This is because an interesting pattern emerges when you dig down into the data a little further.
The CAA price index currently sits at 141.1, which means average prices across the market are 41.1% higher than right before COVID in December 2019.
But the caveat is that ‘newer’ used vehicles are, as a proportion of their price, far less inflated compared to 2019 than much older vehicles, which continue to hold onto their value very well – potentially a result of ongoing financial pressures forcing consumers to lower their budgets, increasing demand for cheaper cars.
These newer used vehicles aged under four years are those that fleet operators tend to turn over.
As of August, SUVs aged under two years in the CAA data set sold for 19.9% more than just before COVID in December 2019, whereas those aged 2-4 years were 31.1% more expensive, those aged 5-7 were 35.1% more expensive, and those aged 8-10 were 40.3% more expensive.
Used passenger vehicles (sedans, wagons and hatchbacks) were on average 26.5% more expensive aged under two than the same sorts of vehicle were pre-COVID, 42.3% more expensive aged 2-4, 52.1% more expensive aged 5-7, and 69.7% more expensive aged 8-10.
Pickups aged under two were an average of 25.5% more expensive than December 2019, those aged 2-4 were 34.8% more expensive, those aged 5-7 were 43.5% more expensive, and those aged 8-10 were 55.4% more expensive.
That’s a very clear pattern.
Meanwhile the Manheim wholesale business recorded volume growth in August as well, up 15.6% over July and 29.4% YoY, for its best result since March 2021.
While its overall Price Index sat at 146.0, or 46% higher than December 2019, this is down 9.2% YoY and down 12.7% from the May 2022 peak. So, while wholesale used vehicle prices remain high, they’re coming down too.
One thing we get asked about a lot are electric vehicles (EVs), with a glut set to enter the used market over the coming years as lease buyers and fleets tap into fringe-benefits tax exemptions.
The sample size of second-hand EVs remains small, given uptake on the new side only spiked in 2022 and these vehicles are yet to trickle into the pre-owned market at scale. Just 0.2% of used vehicle transactions in dealers and 0.5% of listings are an EV or PHEV.
But as we have seen in other regions such as Europe and the US, resale values of used EVs remains a concern due to a number of factors including buyer scepticism over battery health, government rebates and tax breaks pushing new vehicles only, and early adopter preference for the latest and greatest technology in a fast-iterating segment.
The overall CAA price index for EVs and PHEVs ended August at 115.5, lower than the overall price indexes for other vehicle types. This price index for EVs and PHEVs has also come down 15% since February this year.
The take-away from all this? While fleet buyers will be buying new vehicles for less and taking delivery faster, they also need to buckle up and expect to receive less when it comes time to sell them on the other side than they were during the salad days of mid-2022.
