The latest Manheim Used Vehicle Value Index based on auction values reveals that used car price support in October continued to ease – the fourth month in a row that it has done so although the number for November, 152, was slightly stronger as NSW and Victoria came out of lockdowns.

The index peaked in June 2021 at 161.8. In October it stood  at 150.8 – a loss of 10 percentage points and an indication that used car managers are getting an advanced warning to look more closely at their holdings and what they paid for them.

However, the October number of 150.8 still remains 10 percentage points higher than the Manheim index in December 2020 at 140.8 and more than 50 percentage points higher than it was in May 2020 at 97 points.

In other words, while some of the pressure has come off the top prices, there is still a very strong underlying support for current values.   

According to Cox Automotive Australia, which owns Manheim Auctions, prices and clearance rates in November were very strong across all segments and auctions of late model vehicles were achieving clearance rates of 80 per cent. 

CAA said that the firmer prices in November probably reflected increased demand as more people in Victoria and NSW were able to leave lockdown and look at cars again.

However Steve Bragg, the lead partner for motor industry services at Pitcher Partners Sydney, told GoAutoNews Premium that dealers “should make sure they are keeping on top of the pulse of the market to ensure, if it starts to ease and starts to soften, that they can move quite quickly on stock and not be caught on the hop”. 

“Although there was a slight correction in November, the index is probably indicating that they need to be having a much closer look than they would have a couple of months ago.

“Dealers need to stay disciplined in their policies, procedures and the set of metrics they have established for their dealership. 

“So if they have a vehicle that they paid $15,000 for, but the market says it’s $14,000, then they need to take that hit and just exit the vehicle. If they have a vehicle that they paid $15,000 for and the market indicates it’s worth $17,000 then they should be trying to get that car off their balance sheet and have a customer in the car driving away. 

“They just have to watch pricing closely and watch their day’s supply. Because where you make money on used cars is a combination of the two things. It’s the gross and the stock turns that determine our used car return on investment. So it’s all about turning the capital allocated to that vehicle over and over and over again. 

Mr Bragg said that he thought that, as domestic and international borders are starting to loosen and open up, consumers would start spending more on services and experiences like travel and entertainment.

Steve Bragg

“There’s going to be a diversion of their disposable income away from assets like cars to services and experiences; dining out, going on a holiday. It will be going back to where it was pre-pandemic in 2019. 

“I don’t think it’s going to fall off a cliff any time soon, but I do believe in the next six to 12 months that prices and demand will start to ease off.

“Dealers need to be on their toes post-Christmas and post-Australia Day in February time to see what consumer demand looks like as people come off their Christmas, New Year’s and Australia Day holiday/vacation period.

“Is the demand there or have they spent all their money on holidays?

“This is the question dealers need to ask themselves; what’s the intention of consumers post that period into 2022? Will they continue to purchase vehicles or with the easing of border restrictions where they’ll be doing more travelling and spending the money in different ways?

“It’s definitely not a cliff, but dealers need to be aware. Just make sure your used car managers are looking at it,” Mr Bragg said.

By John Mellor