Why are second-hand cars so expensive in Australia

She said prices are 18.4 per cent higher than they were a year earlier and in May were up 1.8 per cent from April.

“The deceleration in price gains is starting to be noticed as the chip shortage, haunting the auto market for the last two years, is now showing the first signs of easing,” she said.

New vehicle sales figures for May out last week from the Federal Chamber of Automotive Industries showed a 6.4 per cent decrease to 94,383 vehicles compared with a year ago, with supply backlogs a major reason for the decline. There were huge delays for electric vehicles too, with Volkswagen saying last month there was a backlog of 300,000 orders in western Europe alone.

Global economy slowing

Ms Noro said the partial easing of the semiconductor shortage is stemming from the global economic slowdown. She said there are reports of a drop in demand for consumer electronics, which also require semiconductors. “China’s zero-COVID policy, combined with higher than expected inflation around the world and aggressive monetary tightening, is darkening the economic outlook,” she said.

She said while the semiconductor situation was more stable than it was a few weeks ago, it was still having knock-on effects. Japanese giant Toyota announced it will cut global production by around 100,000 vehicles in June and had suspended 16 production lines in 10 factories because of the Shanghai lockdown.

“Although there are signs of a deceleration in price gains, prices are not expected to decline any time soon”.

The Toyota Landcruiser is one model which has been extremely popular, with secondhand versions selling for 20 to 30 per cent more than a new vehicle.

Ms Noro said supply chain stress will continue to put upward pressure on the used-vehicle market and Australia’s Consumer Price Index over the next six months.

Citi analyst Sam Teeger said the strong demand for used cars should benefit car parts groups. He said Bapcor, which owns the Autobarn, Burson and Autopro businesses, is Citi’s top pick in the sector, while GUD Holdings should also benefit. He said Bapcor’s products are the least discretionary and it has a strong balance sheet. Bapcor’s Burson business sells to about 500,000 mechanics and garages around Australia. GUD sells car parts including Ryco oil and air filters, Goss fuel pumps and hoses, Narva automotive lighting and electrical parts, and disc brake products.

Listed car dealers are also beneficiaries of strong used car prices, amid heavy demand for new cars in a sector where production disruptions mean lengthy waits for many models.

UBS analyst Tim Plumbe has a “buy” rating on both Eagers Automotive and AutoSports Group and says order books at car dealers are continuing to outpace deliveries which will underpin revenues and strong margins.

But he said there was some potential for softening demand if interest rates have a negative effect on property prices. He said there is a strong correlation between property values and new car purchases because of the “wealth effect” on people’s confidence.

JPMorgan analyst Russell Gill said the May new vehicle decline reinforced the industry dynamics where demand is continuing to outstrip supply.

Used cars are costing a staggering 65 per cent more than pre-Covid levels, new data has revealed.

Statistics from financial intelligence group Moody Analytics also show second-hand car prices have climbed 18 per cent on what they were at the end of 2021, with the Covid-19 pandemic pause in manufacturing continuing to hit the hip pocket.

Drive Magazine content director James Ward told 9 News that used-car market conditions were unprecedented.

“We’ve never seen anything like this … it’s bananas,” Mr Ward said.

“You’ve got ridiculous waitlists on even regular cars, 12-to-18-month wait times.

“Seeing used cars go up in value is also something we’ve never, ever seen.

“In many cases, you’re able to sell a car that’s 18 months old for basically what you paid for it.”

Victorian man Dan Baxter told 9 News that he sold his ute on Facebook Marketplace – a popular platform for selling used items – for only $1500 less than what he bought it for eight years ago despite notching up another 55,000km on the odometer.

“I bought the 2008 Toyota HiLux in 2014 for $22,000 with 170,000km,” he explained.

“I sold it in February 2022 for $20,500 with 225,000km.”

Mr Ward called for caution as the car market continues to heat up, with pundits expecting the manufacturing lag to clear up within the next 18 months.

“With second-hand cars, we're seeing these massive discrepancies between what is the sort of value you would expect to pay and what people are asking for,” he said.

“Drivers should be very cautious against paying more for a car than they really should be, particularly with interest rate rises going up.

“Because if the market corrects, you're going to be in a really bad state.”

“Don’t pay over the odds

“If you're looking at buying a car that feels expensive for what it is, don’t do it. ”

Mr Ward is hopeful interest rate hikes will restrict motorists’ borrowing power and lead to reduced demand as manufacturers catch up, lowering prices over the next year-and-a-half.

Moody’s Analytics forecasts prices remaining high in the “near-term”.

Buying a used car is difficult enough in normal times.

Right now, as prices of secondhand cars soar and stocks of used cars plummet, we’re in a perfect storm – a car shortage bubble that has seen prices in Australia and around the globe jump some 30, 40 and even past 50 per cent year-on-year.  

Now, if you’ve been watching used car prices, this should not come as a surprise at all. Anecdotally, you may have even noticed that the 2012 Mazda CX-5 Maxx that was $14,000 two years ago is now uncomfortably north of $20,000.

Read more about used cars

However, there’s qualitative evidence, courtesy of our very own CarsGuide and Autotrader classifieds, showing the shifts in secondhand car dealer-advertised prices of certain popular models over a 12-month period, from July 2020 to July 2021.

If you’re in the market for a used SUV, used ute, used car or any used vehicle of any type for that matter, then the situation is graver than you may have feared.

But don't worry, because we have a few tips and solutions designed for you to beat the hyper-inflated used-car market.

On the other hand, this data may make your day if you happen to be sitting pretty in one of these popular makes and models.

Why are used vehicle prices so high and stocks so low?

In a nutshell, when the COVID-19 pandemic ramped up in early 2020, social distancing requirements forced most car factories to shut for a period, meaning there were no new vehicles being produced for some time. Many people turned to the used-car market instead.

In the case of perennially popular models like the Toyota RAV4, orders weren’t being filled, so waiting times blew out. So, again, people turned to used cars instead.

Then, when production resumed as the year wore on, component shortages slowed it right down, especially for semiconductor chips. This is the current roadblock that is causing all the delays in new-car deliveries to be extended. Again, many people turned to the used-car market instead.

Finally, through all of this, people feel vulnerable to infection on public transport, so choose to drive… and – you’ve guessed – many have needed to turn to the used-car market instead.

Just remember, though: the pandemic won’t last forever, used-car stocks will rise again as supply catches up with (and in many cases exceeds) demand, and current prices will begin to fall once more. It’s the natural order of things.

Just one big question remains: when?

The big risers

Let’s take a look at the state of play in three of Australia’s most popular segments, according to CarsGuide/Autotrader data, as we journey into the 2021 used car bubble.

One-tonne utes

It will be no shock to tradies that the demand for good, affordable used dual-cab pick-ups continues to rocket. Yet the interesting thing is that not all rises are equal, with age and consumer psychology being influencing factors here.

Case in point is the 21st Century’s Australia’s Own truck, the Ford Ranger.

Early (2011) current-shape (PX) Rangers have enjoyed a circa-40 per cent rise in values in the 12 months since July 2020, leaping from an average of $18,000 to $24,000. This reflects the pent-up demand for cheap, entry-level versions of a popular, trusted model, most likely among younger consumers getting into their first serious truck. Except that, this year, the hapless buyer needs a $25,000 ceiling instead of a $20,000. It’s a massive psychological shift they have to make. It’s a case of having to pay up or missing out.

Then, the differences in prices narrow to low-single digits as the Ranger gets newer, until a certain point around the five-year-old mark, where used-truck buyers seem to set themselves a $40,000 limit. This is how much a 2016 Ranger currently commands, up from $36,000 a year ago. That’s about a 10 per cent hike. Again, a mental barrier that buyers don’t want to cross is fuelling used prices for vehicles of a certain age.

Finally, and perhaps most outrageously, a new 2020 Ranger will set you back more than 15 per cent more in 2021. It’s actually appreciated, according to our data.

Be it a Toyota HiLux, Mitsubishi Triton, Holden Colorado or Nissan Navara, and the same sort of jumps apply.

Small cars

Though no longer our largest new-vehicle sales segment, small cars are big business in the second-hand sphere.

Many parents set a $10,000 limit for good, reliable small autos like a 2011 Mazda3 – sufficient in July 2020, but just one-year on, the same aged car is now a $12,000 proposition. That’s an 8.5 per cent lift.

Just like the Ranger, another psychological price limit has resulted in a significant shift in used Mazda3 prices – this time, a 2016 version that averaged under $19,000 last year has now broken past $21,500. That’s nearly 15 per cent more expensive.  

And what about today’s one-year-old Mazda3 that cost $26,000 when new in the middle of 2020? Astoundingly, it’s jumped around 30 per cent, to $34,000. This highlights the frustrating unavailability or long waits associated with many new models. Much the same is also true for other in-demand small cars like the Toyota Corolla, Volkswagen Golf and Subaru Impreza.  

4WDs

Since early 2020, most Australians have been denied overseas travel, and so – along with an aversion to enduring long plane journeys in times of a pandemic – packing today’s version of the old family wagon, a big SUV like a Toyota LandCruiser, is the next-best option. Just like generations used to, until cheap air travel became a reality in the 1980s.  

Inevitably, owning a LandCruiser Prado or 200 Series is currently probably wiser than investing in most stocks. A 2010 example that was comfortably under $50,000 (another mental ceiling many off-road-bound consumers don’t like breaking through) in July 2020 is now nudging $60,000… a 20 per cent-plus mark up. That exceeds 25 per cent if it’s a 2013 ‘Cruiser that’s now fetching nearly $70,000.

Incredibly, if you were shrewd enough to snag a 2019 model for $85,000 last year, this year they’re commanding nearly $120,000 on average. Thirty-five per cent up. Great news if you’re selling, terrible news if you’re buying.

Crazy prices that defy gravity as well as the rules of depreciation written over a century of motoring. Thanks, COVID-19.

Now… some solutions!

Our soundest advice is to ride out this insane used-car bubble market until some semblance of normality returns.

However, since this is not always possible and you really, really need a good used vehicle, please read on…

Time to think laterally. Not follow the herd. Roll the dice. Prepare to take a risk. And don’t pay too much!

Don’t pay too much

Haggle. Just because people are being opportunistic and even wildly optimistic about what their used car is worth, they – like everybody else – know that prices are currently way too high.

So, offer the customary 15 per cent less. Or 20 per cent off if you’re feeling lucky. And be prepared to negotiate. Done with friendliness, you might be surprised (and relieved) to learn how effective haggling can be. Mentally, maybe be prepared to meet half way between your offer and the asking price, and you might end up with a 2021 used-car bargain.

Top tip, though: contact the seller, see the car in person (or via a video conference), turn on the charm and establish rapport. You’ll catch the fly far more easily with sugar rather than vinegar.  

Take a punt with a B-league alternative

If near-new, lightly used Toyota or Mazda prices are making you cry, cheer up, because for every 2017 RAV4 or CX-5, there are underrated used mid-size SUVs that might be the better buy compared to the beloved A-league players.

For instance, like a newer Ford Escape, Renault Koleos or 2020 SsangYong Korando. Long for a 2018 VW Tiguan but cannot take the premium price point? A Peugeot 3008 would be our recommendation – new or used. Is a 2015 Ranger or HiLux too rich for you? Try a trusty and three-seasons newer Mitsubishi Triton.

Thought about a wagon instead of an SUV?

If a wagon was good enough for your parents back in 1981, why not your family in 2021?

A near-new Ford Mondeo wagon is infinitely preferable for hauling relations and loads than an older RAV4, Nissan X-Trail or Mitsubishi Outlander. Same goes for wagon versions of the Mazda6 wagon, Subaru Outback, Volkswagen Passat, Volkswagen Golf, Skoda Octavia, Skoda Superb and Holden Commodore.

Why? Where do we begin… wagons are lighter and so more efficient, dynamic and agile; lower to the ground and thus more stable and safer; generally better with space utilisation for larger cargo capacities; and way cooler than a ubiquitous SUV.

But, best of all, wagons are cheaper secondhand than an equivalent-aged SUV. Sometimes, they substantially cost less.    

Low finance offers

A new car opportunity in a used-car story? Why not? Some of the less-popular models are often subject to low finance offers, often around the mid or end of year period.

In today’s conditions, the headline “1% Deals” are rarer than new RAV4 Hybrid e-Fours, but '1.9%' and '2.9%' offers might make a comeback to shift unsold old stock. At the time of publishing, a couple of '3.9%' offers were being touted. These have limitations but ensure you find yourself in a new, safe and dependable vehicle with at least half-a-decade's worth of warranty.

In the past big names like Toyota, Nissan, Kia and Skoda have conducted such campaigns. Look out for them.

Consider light hail damage or undamaged stolen-and-recovered vehicles…

This one’s tricky. 

We're not recommending written-off or storm damaged vehicles with massive hail craters in the body work, smashed windscreens, bent-in pillars and rain-flooded interiors. This is actually about the minor dimples we’re on about here, which can be repaired inexpensively at a later date or even ignored. Preferably up high on a roof of an SUV that is generally difficult to spot.

Additionally, we mean on popular, dependable and reliable used models from Toyota, Mazda, Nissan, Hyundai, Kia and Mitsubishi, with prices that are significantly under normal levels because of a few minor hail-inflicted dents on the roof. 

Note, however, that resale values will be correspondingly lower (so the swings and roundabouts rule does apply here), but at least it’s a foothold into near-new popular, safe and reliable motoring.

Likewise, some cars are stolen and neither thrashed nor crashed, but merely driven illegally, before being retrieved; yes, it’s rare, but this does happen, and if the seller can provide proof of the crime having very low or zero impact on the vehicle, then if it’s cheap enough, why not? Be warned, however: the same, lower-resale rules affecting the lightly-hailed afflicted vehicles apply here too.

If you can hire a mechanic or professional to look over a potential purchase, all the better.

Don’t be too put off by higher mileage if all the other buying-a-used-car boxes are ticked…

Here’s a simple formula to follow. The advantage of a model’s good reputation plus full service history plus fastidious seller can often outweigh the disadvantages of a high-mileage vehicle – especially if the price is correspondingly lower.

If it’s cheap enough, even cars with over 250,000km can still have lots of life in them yet if you follow our formula. And this covers all price points – from as low as $1500, right up to six-figure luxury or sports cars.

Go for Japanese and South Korean brands rather than rarer European marques that have an enviable and hard-won reputation for reliability; invariably, this means sticking with Toyota, Mazda, Nissan, Mitsubishi, Subaru, Hyundai and Kia.

Avoid transmissions with bad publicity – like a dual-clutch transmission known as DCT generally but also under the brand names DSG or Powershift in Volkswagen and Ford’s case respectively. A torque-converter automatic is generally regarded as your best auto bet. Or, better still, go manual instead: younger readers, learn an important new life skill!

Insist on a full-service history, preferably by a dealer that specialises in the brand. Records showing regular mechanical servicing and attention are a great way to ensure your used car can go the distance.

Don’t buy a hybrid with much over 250,000km as their battery pack may need replacing – and they’re very expensive. Of course, if this has already been carried out, then you won’t have that to worry about.

Finally, buy from somebody who has cared for the vehicle. If there are signs that the seller neglected or abused the high-mileage vehicle they’re off-loading, walk away. Giveaways can be found in the state of the interior, under the bonnet and in the boot. If they’re grubby or dirty, ask questions.

Good luck and happy used-car hunting! Bargains are still out there – you just need to be a bit more lateral about how to dig them out.