PRE-OWNED CAR PRICES ARE BACK TO OLD TRENDS
The average used car tends to drop in price as time marches on. Partly because it builds up mileage, but also because it is simply getting older. The accountants would call it a “depreciating asset”.
Image supplied by get\Worth
The Covid pandemic upended this long-term trend. Factory and port closures, microchip shortages and other supply chain snarl-ups caused the supply of new cars to be severely cut back.
New car buyers then went hunting in the second-hand market… but there were only so many used cars to go around. At the same time, interest rates dropped sharply, making financing a car more affordable. The increase in demand pushed used car prices up for the first time in at least a decade.
What has been happening since? Car pricing experts, getWorth, give some insight into the state of the used car market. They explain that new car supply has been recovering. At the same time, interest rate increases, fuel price increases and other living cost increases have reduced affordability. This basically reversed the post-Covid situation. What has that done to car prices?
getWorth’s sophisticated pricing tools are based on AI and live market data. They have developed algorithms to separate the effects of mileage and time.
“This allows us to compare apples with apples,”
explains getWorth Chief Financial Officer, Colin Morgan.
“For example, we would compare the price of a 2018 2.8 Diesel Fortuner Automatic with 60,000km, a year ago with the same car at 60,000km today – even though the 2018 models actually in the market, might have added 10,000km to 20,000km.”
GetWorth prepared a graph showing the like-for-like price trends. It shows an interesting picture (*refer to the attached graph).
One can clearly see the normal falling prices pre-Covid, how they started rising after the pandemic hit, and then the return to a falling trend since mid-2022.
“Only now are like-for-like price levels returning to near their pre-Covid levels”
says Morgan.
“That doesn’t mean your car is worth the same today as it was when Covid hit – you would have been adding mileage, which adds another layer of depreciation.”
GetWorth’s information comes from its position as a leading online buyer and seller of pre-owned cars. The business was the first in South Africa to apply live-market pricing and it developed AI-based pricing algorithms to increase accuracy, designed to help consumers buy right and sell smart.
“The return to the old price trends does have implications for consumers,”
cautions Morgan.
“During the post-Covid period, people got used to the idea that cars retained high levels of value, or even increased in price. Someone could buy high, finance a car with a big balloon payment, and still have equity left over when they sold the car a year later."
"The unusual market also encouraged scalping and flipping. However, those days are now over and car buyers need to be careful that they are buying at the right price and financing their vehicle in a responsible manner.”
"We use our tools to trade every day in the live market”
explains Morgan,
“and we have more than 350 cars on our floor, so we can see these forces playing out in the real world. We have to adjust our prices continually to make sure our buying offers and our cars for sale are attractively priced.”
“It’s turning into a buyer’s market,”
he concludes.
“It is a good time for those updating or upgrading their cars, as there are attractive deals available”.
