Moody’s Analytics’ Datium Insights on used-vehicle prices for October said the data shows the market “has turned the corner on price increases” although it points out that prices remain  8.6 per cent higher than last year and 60 per cent higher than the pre-pandemic level.

Moody’s Analytics is projecting that used-vehicle prices will continue their decline during the rest of the year as the supply of vehicles increases and as sales begin to meet demand. 

Moodies predicted that price declines would be greater for trucks and SUVs.

“Given the historically-elevated oil and fuel prices, consumers are expected to prefer lighter vehicles to trucks and SUVs, as a result, these will experience more rapid price declines,” it said.

It said there were some downside risks with the outlook, saying that if demand wanes because of rising interest rates, used-vehicle prices could go down more steeply.

“Rising interest rates on auto-related loans can push certain potential car buyers out of the market or shift their preference to cheaper vehicles,” it said.

“Additionally, any further supply-chain disruption or obstacle to production will cause new-vehicle sales to undershoot our current forecast, keeping used-vehicle prices higher for longer.”

The current price decline is being driven by increased new-vehicle supply due to an ease in the shortage of semiconductors. 

The research said global semiconductor lead time—the time it takes for a semiconductor to reach the end consumer—decreased to 26.3 weeks in September compared with 27 weeks in August. 

Moody’s Analytics’ associate economist Catarina Noro said that this is the largest month-over-month decline in several years.

“Although the decline is notable given the upward trend in lead times in the past couple of years—26.3 weeks is still far from the norm—we expect lead times to remain elevated going into 2023,” she said in the report.

“Improved supplies of new vehicles are currently reducing upward price pressure in the second-hand market. 

“As the chip shortage improves, car manufacturers are able to increase their production levels.”

Moody’s Analytics said that Toyota’s car production increased 73 per cent year-on-year during September, the second consecutive increase since March. 

“The increase in production is expected to be able to ease part of the ‘car drought’ Australians are facing,” the report said.

“Currently, in Australia, customers can wait more than one-year for some of Toyota’s best-selling cars.”

Moody’s Analytics indicators of supply-chain stress have also significantly declined in recent months with its China supply-chain stress index declining 17 per cent year-on-year during September. 

It said that the Vfacts sales data for September showed China was the third largest vehicle supplier to Australia. 

“This could be translated into more vehicles arriving on Australian shores,” Moody’s Analytics said.

In its outlook, the report said that although risks for the demand side have increased in recent months as the Reserve Bank of Australia (RBA) is lifting the cash rate more aggressively than anticipated, there are still no signs of a setback in the demand for vehicles. 

“At the moment, the demand is still being protected by a surging labour market, with the unemployment rate reaching 3.5 per cent, one of the lowest levels of unemployment since 1974,” it said.

“This low unemployment environment and elevated job vacancies are creating a tight labour market. Wages have responded with a 2.6 per cent year-on-year wage increase during the June quarter, the fastest in eight years.

“However, there are risks for the vehicle market. Consumers are expected to respond soon to interest rate hikes. 

“So far, the RBA has increased its cash rate by 2.75 percentage points since the beginning of the year and more tightening is expected during the rest of 2022 and 2023. 

“Lending rates have moved higher as prices for non discretionary items such as fuel and food soar. This is adding to consumer anxiety and reducing budgets for discretionary items such as cars.”

By Neil Dowling