Has Used Car Prices increased During COVID-19?
The fear of contagion in trains, buses and in other forms of public transport and the typical crowds that occur there has triggered the sale of used cars and those who can afford it. This increased demand has resulted in a general price increase for used cars during COVID-19. However, the price change is not as simple as it sounds.
In mid-March, the effects of the Coronavirus outbreak began to be felt in our country. For obvious reasons, new vehicle sales plummeted in the world and in the local market; At the same time, due to different factors, our currency lost value against the dollar, which is the currency used by dealers to import new cars.
Why did used car prices go up during COVID-19?
During the peak period COVID-19, many people were scared to use the public transport and got in the market to buy a cheap, used car with the plans of selling it when everything gets back to normal. This drove the used car prices by almost 50%. Suddenly the cars that no one was interested in were going up in value.
However, the trend didn’t last long as more and more people were forced to work from home therefore didn’t need to travel. Despite the decreased buyers, the used car prices haven’t nose driven as expected.
This graph by Moody’s Analytics shows how used car prices skyrocketed in 2020. According to the data, used car prices in Australia has risen by 49% since April 2020. Michael Brisson from Moody’s state that used cars had price tags similar to those of manufacturer’s recommended sale price, which is way above what a person should pay.
In normal circumstances an older car with more kilometers should be priced as such – lower than newer cars. However as Michael Brisson points out, this correlation no longer exists in the used car market.
Just to show how people refused to use public transport there was a poll in which people were asked about their daily use of it – before March, 15.4% of men and 14.2% of women said they use it almost everyday. These numbers fell to 4.9% and 2.9% accordingly in October. There are those that owns an old car and would probably sell it as scrap for cash for cars companies such as Scrap cars removal.
Will COVID Tax go away?
The increase on the used vehicle prices has created the unofficial COVID Tax – it is what people refer to as the “artificial price increase” online. Many people have put their cars up for sale just to benefit from the higher market value with hopes of making an extra dollar during the pandemic.
The big question is whether this tax is going to stay or not. The answer is totally up to how Australia responds to the future outbreaks and roll-out of the vaccines. Once people feel safe enough to return to the public transport, used cars will see a decrease in price.
Used cars aren’t the only things that have gone up in value.
Compared to last year, the sales of road motorbikes were up 8.2% in the last quarter of 2020. This significant increase is a direct result of the pandemic as well. And yes, Covid tax applies to motorcycles as well – there is a visible increase in prices compared to previous years.
However, there are good signs; the prices have decreased by 3% by late December, early January. Mr. Brisson states that as the economy recovers, the market will return back to normal meaning increased sales in new cars and decreased price for used cars.
So far, no brand has shown an excessive rise that gives signs of being a response to economic changes, but we will be monitoring how prices behave in the coming months. The automotive industry has been badly hit, so somehow they will seek to recover. Will we see price cuts or will economic conditions prevail and the trend of higher prices will continue? We’ll see…