AUSTRALIAN wholesale used-vehicle prices are on a sustained downtrend, depressed by the increased global production of new cars that has improved supply and led to a fall in used-car prices.

The Datium Insights-Moody’s Analytics Used-Vehicle Price Index released this week dropped to 171 in December, down 12 per cent from its peak in May.

In its “Australia Q4 Used-Vehicle Price Report: The Sustained Downfall”, financial intelligence company Moody’s Analytics now expects used-vehicle prices to continue falling through 2023 as the number of car ships arriving in Australia improves.

Car shipments into Australia in the third quarter increased by about 30 per cent, according to government data.

Moody’s says that additional downward pressure on vehicle prices “will come from weaker domestic demand as the combination of rising borrowing costs and elevated inflation erodes the ability of households and businesses to make big-ticket purchases.”

In the latest report compiled by Moody’s Analytics’ assistant director Katrina Ell, senior economist Michael Brisson and associate economist Catarina Noro, it said demand for new and used vehicles will weaken over 2023 because consumers are under pressure from rising borrowing costs.

“Household consumption is still upbeat in Australia thanks to the tight labour market, with the unemployment rate hovering around its lowest level on record,” the report said.

“But labour market conditions will soften over the year as tighter monetary policy settings filter through.

“The Reserve Bank of Australia has already injected 300 basis points’ worth of rate hikes since May 2022. A further 25-basis point hike is expected in February, bringing the cash rate to 3.35 per cent.

“Households will increasingly feel higher borrowing costs this year as fixed-rate residential mortgages are renegotiated and labour market conditions cool.

“Additional strain is coming from high prices for non discretionary items, including food and energy.”

Moody’s said inflation is expected to have peaked in the December quarter of 2022 “but will gradually cool over this year and not return to the Reserve Bank of Australia’s target range until 2024.”

It forecast Australia’s GDP growth to cool to 1.2 per cent in 2023 from an estimated 3.5 per cent in 2022, with weaker household consumption an important influence.

In the automotive sector, the report said the used-vehicle price retreat – for the seventh straight month in December – was caused by supply conditions heading back towards pre-COVID normality.

It said that used-vehicle prices notched their first year-on-year decline since May 2020, with a 3.4 per cent contraction.

“While monthly price declines will proceed through this year, prices are still relatively elevated, remaining 54 per cent above pre-pandemic levels,” the report said.

 

“The decline is driven by increased new-vehicle supply as the semiconductor shortage eases.”

Moody’s Analytics said the semiconductor shortage through 2021 put automotive production into low gear for more than a year, limiting global vehicle inventories.

“Limited inventories for new vehicles sent consumers to the used-vehicle market, driving up prices,” it said.

“Although global vehicle production has not returned to pre-pandemic levels in Europe and Asia, there has been a decent improvement.

“For instance, vehicle production in Japan was 35 per cent above 2021 levels in October but remained 11 per cent below 2019 output.”This improved global supply has allowed increased volumes of new vehicles into Australia.

During the third quarter, Australians imported a total of $7.3 billion worth of motor cars, according to the Australian Bureau of Statistics. This represents a 29 per cent increase compared with the third quarter of 2021.

“For 2023, we expect that the supply of new vehicles will continue to increase, further easing pressures in the second-hand market,” the report said.

“Recently, Toyota announced it expects to surpass its pre-pandemic production level in 2023.”

Moody’s Analytics projects that used-vehicle prices will continue to fall through 2023 as the supply of vehicles increases and demand slows.

“Prices are expected to fall by slightly more than 10 per cent over the year,” it said.

“Still, manufacturers will remain hesitant to oversupply the market given the considerable global economic headwinds.

“This will keep used-vehicle prices well above pre-pandemic levels, with stabilisation in prices occurring in 2024.”

But this comes with a warning. Moody’s Analytics said that if supply returns faster than expected and consumer demand wanes significantly amidst rising interest rates and broader gains in the cost of living, “used-vehicle prices have room to fall more rapidly than the current baseline outlook.”

By Neil Dowling