The RedBook Insider: What’s really driving used car pricing?

Plenty has been written about record used car prices with much of the blame firmly attributed to the lack of new car supply. While very strong consumer demand has also contributed, the forgotten driver is higher new car prices.

We heard much about the crisis that enveloped global automotive parts component supply during COVID, with semi-conductor chips being the most well-known. Two years on, the auto industry is still facing challenges as it competes with other manufacturing sectors for key component parts supply. This competition, in addition to expectations to shift to greener powertrains, has placed pressure on car brand’s profit margins.

The end result are new car price increases at unprecedented, sustained rates. And it’s these increases that are having a profound impact on used cars as relativity between the two types adjusts.

What happened to being able to buy a mainstream brand small hatchback under $25,000 before on road costs in 2019? The same car is now closer to $29K. Even considering specification/feature advancements, that’s still a 17% increase in just three years!

The chart below gives you a clear picture of the kind of new vehicle price rises taking place for this basket of top selling models from a cross section of segments and Australia’s favourite brands.

Source: RedBook, New Vehicles

It’s not all bad news though. Whilst none of us likes paying more for the car we’re buying; higher new car prices do give your trade-in or private sell price a healthy boost.

It’s also good news for those with cars on finance coming out of three to five-year contracts or leases, which in many cases now enjoy some upside on residuals that were set pre-COVID.