Auction house Manheim’s latest salvage report said prices on motor vehicles, motorcycles and truck and machinery salvage are “reaching modern day highs”.
“Whilst average sale prices vary from month to month, all segments have seen increases from January 2020 to June 2020 of between five per cent and 43 per cent as multiple market factors combine to drive demand for salvage assets,” the report said.
It said multiple factors combined during 2020 to significantly impact returns on salvage assets, led by the effects of the pandemic.
“The closure of parts factories in north Asia at the start of 2020 has significantly impacted supply chains for OEM and parallel parts, increasing the desirability for locally harvested parts,” Manheim’s report said.
“Sourcing recycled parts locally has significant benefits for the community both financially and environmentally and supply chain challenges have had a positive impact on their appeal.
“In addition to this, stand-down days for some employees or reduced activity within businesses combined with JobKeeper and JobSeeker payments have driven demand locally in particular for mechanical parts such as engines, transmissions and drivetrain components.”
Manheim said that many businesses with mechanical workshops have used the increased available time to facilitate repairs on company and fleet vehicles.
In addition, people who have been forced to take stand-down days have used increased government payments and free time to undertake a “backyard fix” on the family car or project car.
“Much like the increase seen in home renovation and garden supplies, many people have retained an income stream with very little opportunity to spend with restrictions on cafes, restaurants, cinemas and travel,” it said.
“Further impacting the price of vehicle salvage is the significant drop in mobility nationally, particularly during April and May due to lockdown restrictions.
“This decrease resulted in fewer vehicle accidents, claims and total loss salvage vehicles coming on to the market, reducing supply.
“This supply challenge was somewhat offset by additional hail-affected vehicles flowing from the January 2020 Canberra hail storm.”
The report said that in the half year to June 30, 2020, the average sale prices for premium salvage was up 23 per cent while the mid-range salvage vehicles were up 43 per cent. Low-value salvage was up a modest five per cent.
“The average sale price of salvage motorcycles grew for five consecutive months to end the first half of the year up 21 per cent whilst heavy truck and machinery salvage saw four months of consecutive growth to be up 33 per cent over the past six months,” it said.
Manheim said the outlook for the rest of 2020 “comes with a giant caveat attached – will COVID-19 grow and spread and if so how much and how far?”
It said that as the virus restrictions eased over the past six weeks nationally there has been a noticeable increase in mobility across all states.
It believes that on current trends, the salvage prices will return to pre-COVID-19 days by the end of this year.
However, it said the recent COVID-19 outbreak in Victoria and the extension of assistance payments – now confirmed to early 2021 – will moderate this impact.
“In addition we anticipate there will be a significant increase in infrastructure projects commencing as state and federal governments locally, as well as governments globally, look to generate increased economic activity following the COVID-19 downturn,” it said.
“Historically this has led to increased demand for steel as a resource and as a result an increase in the price of scrap metal.
“In turn the demand for low value salvage vehicles that are predominantly crushed for their weight in metal increases, this then drives an increase in their value and returns rise.”
Other factors to consider before the end of the year and early in 2021 is the potential for a La Nina weather pattern to develop in the Pacific Ocean.
“La Nina events are generally associated with increased rainfall and storm activity across much of eastern and north-eastern Australia with the last significant La Nina cycle occurring during 2010 resulting in substantial flooding across south-east Queensland as well as spawning Cyclone Yasi across the Cairns and Townsville region,” Manheim said.
“As a result flood and storm related events generally lead to higher claim volumes in the affected areas which also means higher total loss volumes coming on to the market.
“One thing is for certain, if the first half of this year is any indication then we should expect the unexpected for the remainder of 2020.”
By Neil Dowling