Apr 20, 2021
Rising used car sales driving automotive industry growth
Used-vehicle prices continue to break records in Australia, with consumers paying almost 40 percent more for used cars now than they were pre-pandemic in 2019. Demand, particularly for SUVs, commercial utes and city runabouts, continues to grow and shows no sign of waning.
Car prices and sales have been taken on a roller coaster throughout the pandemic, initially falling by about 15 percent in the first months of the pandemic due to pervasive uncertainty, trade restrictions and supply chain disruptions. But when trade resumed towards the end of 2020, the stock of new cars from international manufacturers was so restricted, consumers were limited in what they could buy, seeing demand spill over into used cars.
Another factor contributing to the spike in demand for used vehicles, has been the global shortage of semiconductor chips, which is an increasingly important part of modern vehicles.
The production bottleneck of these chips came to the fore in late 2020, when new-vehicle sales began to rebound from the pandemic more quickly than expected, catching suppliers off guard. This, coupled with the huge demand for computers and smartphones which also utilise the chips, has resulted in lead times of more than 15 weeks for the technology. This has been exacerbated further, by the still present uncertainty that is seeing a larger portion of the population shunning public transport for fear of infection and instead choosing to drive.
Prices of utes and holiday SUVs have also been driven up from increased demand, with aspiring holiday makers taking advantage of road trips around Australia while international travel restrictions remain in place.
The increase in used car sales is driving growth in other areas of the automotive industry, with mechanics experiencing a surge in business from people needing pre-purchase inspections and roadworthy certificates for their vehicles. Customers holding off on new car purchases have also been turning to mechanics in droves to keep their existing cars running and give them confidence to travel.
Interestingly, alongside the surge in used car sales, new vehicle sales were up by 13.5 percent in December 2020 compared to 2019, totalling 95,652. This is the second annual increase in the past two-and-a-half years and is the biggest annual lift in new car sales in eight years. In March alone, official industry figures revealed that more than one hundred thousand new vehicles were registered in March 2021 alone. According to research conducted by Commsec, this is being driven by several contributing factors, including very low interest rates, the government asset write-off scheme and restriction on overseas travel. This is resulting in increased activity for dealerships, with anecdotal evidence suggesting a surging customer base in the first months of the year.
Car dealer Bill Assaad told The Age that January of 2021 was one of the busiest months in the history of his business, however this did highlight some of the business conditions posing challenges to the industry: on the one hand, he is unable to provide enough stock to meet demand. On the other, the wholesale price of cars has increased significantly, which makes margins tighter for the business.
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