Used-car bubble has burst, why your trade-in might not be worth as much as you expect - Drive

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A severe shortage of new cars – and a shift away from public transport during the pandemic – saw used-car prices skyrocket. Now they're about to crash. Here's how to drive a bargain.

13:1427 January 2023

The value of used cars is about to come crashing down after two years of record highs, leading industry experts have warned.

During the pandemic over the past two years, a severe shortage of new cars due to production slowdowns – combined with a shift away from public transport and back to our own vehicles to avoid the risk of infection from the coronavirus – saw used-car prices skyrocket.

However, rising interest rates, shorter waiting times for new motor vehicles, and more acceptance around delivery delays have seen used-car prices hit the brakes.

Used-car bubble has burst, why your trade-in might not be worth as much as you expect

While certain in-demand vehicles are still commanding higher than retail prices – even for used examples – industry analysts say the value of secondhand "run-of-the-mill" cars are on their way back to pre-pandemic levels.

"The used-car bubble has definitely burst," said Craig Moore from Craig Moore Wholesale Cars, who has been in the auto industry for more than 30 years.

"Good cars and in-demand cars that are in short supply are still holding strong, but run-of-the-mill cars are either back to pre-COVID prices or on their way back to pre-COVID prices, and it's happening very quickly."

Mr Moore said there was "always going to be a reckoning, because used-car prices could not simply continue to climb."

"By the end of (the used-car bubble), finance companies wouldn't approve certain loans and insurance companies wouldn't insure certain used cars because, in reality, when the dust settles they'll be worth less than what someone was asking for them – and what some buyers were prepared to pay."

Mr Moore said during the pandemic – when there was a severe shortage of new cars, which led to a spike in demand for good used vehicles – he could barely source one or two cars a month to sell. "Now I'm getting a dozen calls a week from people wanting to sell cars, and I get to take my pick of the best of them."

Another car valuer and wholesaler – a 34-year veteran of the auto industry – says used-car prices have fallen by about 15 per cent in the past three months, with the exception of hard-to-get in-demand near-new cars with long waiting times, such as the Toyota LandCruiser 70 Series, Ford Ranger Raptor, and Suzuki Jimny.

The second used-car expert – who asked to remain anonymous – told Drive most used-car dealers are offering low prices for trade-ins because they need to make up for the losses they are now experiencing, having paid too much for trade-ins over the past two years.

"A lot of used-car dealers are now upside-down (the car is worth less than what they paid for it)," said the veteran used-car wholesaler.

"So when you're offered a trade-in, you aim low, because you need to be able to make sure you're not going to go backwards.

"Used-car prices are definitely easing. The problem is, we don't know where the bottom is, so that's why trade-in offers have started to come down dramatically."

However, used-car buyers could end up getting a bargain – if the dealer is keen to cut their losses on what is already on the lot.

"I'm looking at my used-car lot right now and I will have to sell about half of those cars at a loss because the market has turned and I need to get rid of them," he said. "Every day those cars sit there, they're costing me money."

A third used-car wholesaler, also speaking to Drive on condition of anonymity, said when it comes to trade-ins – particularly on certain risky brands such as Jeep and Land Rover which can come back to haunt the dealer with out-of-warranty repairs – "I won't touch it unless I can knick it, they're not worth the grief."

The second used-car wholesaler we interviewed said the past two years have been the most turbulent and unpredictable time of his career.

"None of us know what's around the corner when it comes to prices," the used-car expert told Drive. "The market has never been so hard to predict, which is why you're seeing trade-in offers come right down."

A fourth used-car wholesaler canvassed by Drive said: "At the height of the pandemic when things were crazy, we were making up to $5000 (profit per used car) on average. Now we're back down to less than $2000 (profit) per car, or making a loss of up to $5000 to get it off the books."

A fifth industry expert – a dealer principal of a network of multi-franchise showrooms – told Drive: "Used-car prices are settling but they still have a way to fall.

"What we have seen evaporate almost overnight is people paying $5000 or $10,000 over retail to jump the queue to get into a near-new car. People have been conditioned to wait.

The other factor driving down used-car prices: "People might have bought something to get by while waiting for their new car, thinking they'll run it for six months or so, and then they get a call out of the blue saying their new car has arrived earlier than expected.

"So then they want to get out of their used-car quickly, which also drives down prices."

The feedback from used-car wholesalers on the frontline – canvassed by Drive – tallies with industry data compiled by Moody Analytics, which reports used-car values have dropped by 12 per cent since their peak in May 2022.

The firm has forecast used-car prices will continue to fall through 2023 "as the supply of new vehicles into Australia improves."

"Additional downward pressure on (used-car) prices will come from weaker domestic demand as the combination of rising borrowing costs and elevated inflation erodes the ability of households and businesses to make big-ticket purchases," said a statement from Moody Analytics.

Joshua Dowling has been a motoring journalist for more than 20 years, spending most of that time working for The Sydney Morning Herald (as motoring editor and one of the early members of the Drive team) and News Corp Australia. He joined CarAdvice / Drive in 2018, and has been a World Car of the Year judge for more than 10 years.