Now could be the time to buy a car

Old car road

COVID-19 caused disruptive ripples across many industries, with used car prices being one of the countless victims. We saw PlayStation 5 shortages, scalping, and the demand for air fryers skyrocket. In a sense, these used car phenomena were exactly the same.

This is because it wasn’t just about supply side shocks and semiconductor chip shortages. Whilst this certainly played a part, it was also about shifting consumer behaviour in conjunction with stimulus checks. Many individuals and businesses saw fiscal governmental support in a moment where they had a lot of time on their hands. The result was a desire to play video games, upgrade their truck, and take up the hobby of camping in a van.

Ultimately, buying a used car in Australia quickly became very expensive, whilst getting a brand new one was troublesome.

How Prices Have Changes in The Past 5 Years

The rising demand for used cars during the pandemic was in part caused by a shortage of new cars. BMW raised their prices across the board for all new models by $1,000-6,000. It’s no surprise, given that there are over 1000 chips in a new car (and over 2000 in an EV), during a time of serious chip shortages. 

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The knock-on effect on used cars was drastic according to Moody’s Analytics. But, the only way is down from where they peaked in 2022. James Ward, Director of content at Drive, says “The used car ?landscape, especially the new car landscape, is probably as healthy as it has been for the last three years.” 

“During the pandemic, it was crazy and we saw used car prices rise 20 to 30 per cent, purely because there were no new options.”?

Today, the Mazda CX-8 and CX-9 range have dropped by around a quarter in price just from a few years ago, as have Skoda Kodiaq and Mitsubishi Outlander.

It is only Toyota that is seemingly defying this downward pressure on prices, as some models have actually risen again recently.

Essentially, the used car market is being opened back up with more listings, more choice, and a cooling in demand which is further helped by the inflation-driven cost of living crisis.

The Moody’s Analytics study shows that the fall in household borrowing power is also playing a part, with the downward price trend set to continue. Despite the ~13% fall in prices from the 2022 peak, prices are still higher than pre-pandemic levels, though projections show that prices are expected to continue flailing. So, will 2023 be the best time to buy?

Electric Vehicles Present a New Opportunity

As governments around the world continue to set 2030 targets for increasing EV usage, now is the time that everyday people are considering whether they should switch to electric. EVs make up less than 4% of Australian car sales, but this could soon change as prices continue to fall. BYD’s Dolphin is currently around $45,000, whilst the GWM Ora and MG ZS EV Excite start at $43,990. The under $40,000 is expected to be broken imminently.

The first and foremost hesitation over EVs is that they’re expensive. The batteries in particular cost a lot in raw materials and have limited lifespans, making diesel and petrol cars more financially economical for most people. 

However, not only is the technology getting better – and therefore more financially viable – but the government and trade is on our side. High-end electric vehicles in particular are set to be dramatically reduced for Australians because of successful trade negotiations with the EU.

The federal government is considering slashing the unpopular luxury car tax and/or throwing it away altogether for environmentally friendly cars. This is a 33% tax, which is a substantial amount that’s been hindering demand. Alternatively, the luxury car tax threshold could simply be raised from the rough $70,000 mark to closer towards $90,000.

In a bid to secure post-Brexit trade deals, the UK has put an offer on the table to Australia which phases out import taxes, and this will include cars.

The Role of Novated Leasing

Novated leasing has played an increasingly important role in the Australian automobile industry. Whilst there are a series of aggressive taxes on cars, novated leasing presents an opportunity to keep costs down. As shown on, the savings can be vast. 

It’s essentially a three-way deal between an employer, an employee, and a lease company. Leasing is a growing industry as it’s a way to mitigate the burden of car ownership. Depreciation and breakdowns are no longer a concern, and the customer benefits from frequent upgrades. This is particularly popular for those looking to access the latest cutting-edge EVs, because the products are evolving rapidly and drawbacks, such as range, are still a key issue.

A novated lease means that the employee benefits from a leased car whilst it’s the employer that takes on the obligations under the lease. The payments can therefore come out of the pre-tax salary directly, which is a substantial savings in income tax. Therefore, despite being employed, the employee somewhat benefits from an expense akin to a sole trader buying a work van.

The employers enjoy this because it can be seen as a work benefit without costing them much money. They can provide a fleet, which a car is often necessary for work, without the upfront costs associated with buying a car in Australia. And, in the current high-interest environment, it avoids taking on expensive car financing through debt. Using a calculator can quickly show an estimated monthly repayment amount given a set of terms.

Of course, lease providers also benefit from heightened demand due to the lowered costs. Both the salary and vehicle can impact how much is saved exactly, but it’s a system that is sifting much of new cars towards leasing instead of outright sales.

Challenges Still Lay Ahead

The path may seemingly be laid out for EV dominance, but this could be a mistake. The science, politics and economics of the automobile industry should be at a crossroads, and any claims of certainty should be met with skepticism.

This is perhaps another argument in favour of buying a used car, beyond the prices coming down. Put simply, electronic car manufacturing, along with the generation of electricity, isn’t always clean or renewable. Australia still produces much of its electricity with fossil fuels, whilst EVs themselves require much more energy to manufacture.

This could pose some upcoming changes if the government remains to have an open mind. Nearby nations Japan and South Korea lead the way when it comes to hydrogen fuel cell vehicles, which poses some of its own unique benefits. Currently, the Toyota Mirai, a leading hydrogen fuel car, is $63,000 for a three-year lease period – more than many EVs. 20 of these were leased to the Victorian government in a trial. 

Politics and sustainability aside, it could present a changing environment regarding government subsidies, taxes, and other schemes. More hydrogen stations are expected to be built, for example. Alternatively, how Australia continues to produce its electricity could also play a role; and if its green energy opportunity is grasped with the same enthusiasm as the resources boom.

Bottom Line: Should I Buy a Car Now?

If we look back on the previous 3 or 4 years, now is a better time than any to pick up a new car. Don’t feel bad if you have been holding out for one – you’re not being tight or hurting the environment by running your older diesel car (it’s better than overconsumption).

However, we are all getting more serious about alternatives. Whilst EVs are seen as the only option, the choices may open up more in the future, but that future doesn’t seem to be anytime soon. As for new vs used cars, it’s more important to consider the current warranty and how you’re financing the car (or leasing).

Ultimately, the best way to buy a car is the one that best suits your circumstances. For now, trade deals are being made, EV schemes are being proposed, and novated lease schemes make it a good time to seek out a new car in 2023. 2024 may be better, but it might not. What we know for certain is that today is the best it’s been in too long.