Used car prices have continued to rise as the COVID-19 pandemic endures but values could fall sharply if virus-induced lockdowns persist during the second half of the year, new analysis suggests.
Moody’s Analytics says prices jumped by 34 per cent over the past year and by 10 per cent in the first half of 2021 as the level of growth slowed.
The increase has been fuelled partly by greater demand across both the used and new sectors but also by the limited supply of some new vehicles as a result of a computer chip shortage.
But the analysis has found the end of used cars as an appreciating asset “is upon us”.
“It took a confluence of unpredictable circumstances – a highly transmissible virus, a surge in demand for consumer electronics, a fire at a major auto chip producer, and a rapid recovery in world-wide new-vehicle sales – to flip the market on its head,” Moody’s Analytics said on Tuesday.
“It will not take that much for the market to return to normal.”
It found prices were likely to stay elevated for the rest of 2021 as a slow but steady stream of computer chips allowed manufacturers to gradually catch up with demand.
That was likely to keep prices well above pre-pandemic levels.
In looking at one particular model, Moody’s Analytics said the price of a 2019 Toyota Hi-Lux with 30,000 kilometres on the clock was still running at about 90 per cent of its new car cost in January this year.
By comparison, a 2018 model with the same amount of kilometres was worth about 80 per cent of its original value in January 2020.
That equated to a difference of about $4000.
But the company also warned that prices of used cars were likely to crash should there be extended countrywide lockdowns that served to cripple economic activity.
“Job losses and recession would depress demand and cause used vehicles to sharply lose value,” the report said.
“Nevertheless, the most likely path forward is a smooth and steady decline in prices over the short to medium term as the supply of vehicles returns and the market reaches equilibrium.”