Will new car prices drop in 2023 in Australia

Used car prices have been ridiculously high in Australia for so long, but with 2023 on the horizon and the new car shortage on the way out, that’s set to change, right? Wrong, as it turns out.

The last two years have seen the car market get hotter than a vinyl singlet, thanks to a myriad of factors (most of which can be boiled down to one: COVID-19). Most obviously, the pandemic has made the prospect of public transport far less palatable for many. We’ve also seen road trips, off-roading and the #vanlife spike in popularity…

What’s been even more significant is the disruption to global trade and manufacturing COVID wrought, the impacts of which we’re still dealing with – such as the global computer chip shortage. The long and the short of it is this: used car prices are really high right now, there’s been a shortage of new cars and people are flipping new cars for ridiculous profits at ridiculous rates.

Conventional wisdom would suggest now that the worst of the pandemic is over and things are getting back to normal, prices will start to simmer down, meaning Aussies should consider selling their cars before summer / before 2023. That was our working theory, at least – but it turns out that’s unlikely to be the case.

DMARGE spoke exclusively with Mike Sinclair, Editor-in-Chief at Carsales (Australia’s largest car classifieds so they know what they’re talking about) who suggests that it’ll still be a while until new car stock levels get back to normal in Australia:

“As long as new car stock levels remain to be challenged, there will be pressure on used car prices, and the outlook is still for many brands to be stock-constrained through to the end of 2023 and perhaps beyond.”

Mike Sinclair

It’s a prognosis shared by many car dealers in Western Australia (who are no strangers to dealing with stock shortages), as this report by The West Australian relates.

In short: there’s no need to rush and sell your car whilst prices are still high because it’s likely to remain a seller’s market for a while now. That’s bad news for people looking for a car, though. At least bikes are still cheap.

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Used vehicle prices declined again in October, but they’re still sitting 60 per cent higher than pre-pandemic levels.

Data from Moody’s Analytics reveals used car prices declined for the fifth consecutive month and dropped by an average of 1.8 per cent from September to October.

But they are still 8.6 per cent higher than last year, and are sitting 1.7 per cent higher than at the beginning of 2022.

The firm projects used vehicle prices will continue to decline during the rest of the year, with larger vehicles expected to experience more rapid declines given elevated fuel prices.

It cites increased new vehicle supply as the cause of the decline in used car prices, as semiconductor chip supply improves.

In September, it took 26.3 weeks for a semiconductor to reach the end consumer, down from 27 weeks in August and the largest month-over-month decline in several years.

Moody’s Analytics also notes its China supply-chain stress index declined 17 per cent year on year during September.

It does, however, warn lead times will still remain high going into 2023.

Demand for vehicles shows no sign of easing, backed by a surging labour market with unemployment reaching 3.5 per cent – one of the lowest levels since 1974. Wages have also seen a 2.6 per cent year over year increase during the June quarter.

It’s not all rosy, however.

“There are risks for the vehicle market. Consumers are expected to respond soon to interest rate hikes,” said Moody’s Analytics associate economist Catarina Noro.

“So far, the Reserve Bank of Australia has increased their 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 nondiscretionary items such as fuel and food soar.

“This is adding to consumer anxiety and reducing budgets for discretionary items such as cars.”