When will car prices start to come down?

31 May 2023  By: Alex Forrest

Right now, the vast majority of new and used car buyers just want to purchase a car for a reasonable price and move on.

Thanks to ongoing new car shortages and some used cars still being thin on the ground, that can be tough to do - even if you can afford it.

But there is light at the end of the tunnel – even though we might still be in the tunnel for some time yet.

High-volume car manufacturers such as Toyota and Hyundai have said the supply situation is slowly improving and Toyota expects supplies to continue to improve during the second half of this year.

In the meantime, being flexible with vehicle specifications and even vehicle models can help consumers get into a new car sooner.

Will car prices go back to pre-pandemic levels?

Motor Trade Association of WA (MTAWA) chief executive, Stephen Moir, says there’s has been evidence of some green shoots emerging from what was previously a rather bleak landscape.

“We’re seeing an increase in stock across most manufacturers,” he says.

“Shortages [of new vehicles] have not only been driven because of the pandemic and the subsequent closure or reduction of production, but the war in the Ukraine has seriously disrupted the supply chain for critical parts such as wiring harnesses.”

“There will still be supply constraints for the more popular models with one estimate for a hybrid SUV out to 18 months, but this may change as production picks up. European models have seen a strong recovery and there are good stock levels across the majority of European brands.”

However, Moir says it will still be some time before consumers can expect to drive a hard bargain on a new or used car.

“Used car pricing has softened from the peak when we saw prices increase by 35 per cent, but demand remains strong, particularly for the more popular models and this will keep pricing higher than pre-pandemic levels.”

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“In the new car market, again we’re still experiencing strong demand across the top ten sellers and this will mean that negotiating for a better deal will be more challenging.”

However, strong demand and limited supplies of vehicles are not the only changes in the market that are affecting pricing and consumers’ ability to negotiate.

Fixed pricing and manufacturer-direct sales

There is an increasing trend among vehicle manufacturers for the Australian importer of a brand to set and fix the pricing of a vehicle, rather than the dealer, which traditionally is a franchise that manages its own stock and pricing.

Rather than dealers purchasing vehicles from the importer at wholesale prices and then selling them to customers, some car brands have moved towards importing vehicles and selling them directly to consumers, using dealers as agents to sell vehicles owned by the importers. Vehicle importers then pay dealers a flat fee for delivering the vehicles.

This means there’s potential for increased profitability for vehicle manufacturers because they can fix their prices nationally, rather than sell to dealers at wholesale prices which allow dealers to manage their own sales margins.

Tesla does this currently, as does Honda and Mercedes-Benz. Manufacturers moving to the agency model have promoted the changes as meaning there is no haggling on price because prices are fixed nationally.

However, there are plenty of new car buyers who prefer to haggle for a better price than pay several thousand dollars more for their vehicle than they might have otherwise.

Competing brands still using the dealer franchise model may see this as a free kick given the move to fixed pricing by some brands could drive car buyers away and into the showrooms of dealers who are still up for some price negotiation.

Servicing and repair wait times

The MTAWA’s Stephen Moir says skills shortages across all parts of the automotive sector will remain with us for the foreseeable future. “Unfortunately this will see longer wait times for car servicing remain.”

Those unfortunate enough to have recently been involved in a crash may have also experienced longer wait times to have their vehicles repaired.

This is partly due to a limited availability of some car parts in Australia, and long wait times on parts that need to come from overseas.

But arguably the biggest challenge for the car repair industry is a shortage of trained staff, which the MTAWA said has resulted in thousands of vacant positions. With fewer people available to do the work, it follows that delays and wait times are set to continue for some time yet.

Signs that things are changing

For those just wanting to get themselves a new or used car, there are signs that the extreme supply constraints we’ve seen in recent years will continue to ease.

One of those signs is vehicle sales figures – which have become more of an indicator of the industry’s ability to supply vehicles – at least among the popular models – than a guide on consumer vehicle preferences or overarching market conditions.

Despite rising interest rates and overall cost of living pressures, new vehicles sales in the first four months of 2023 increased nationally by 2.2 per cent, with Western Australia increasing by exactly three times that rate – 6.6 per cent – over the same four months.

There will be exceptions, but as a whole, it appears manufacturers are slowly starting to catch up on some of those long back orders, with the above numbers indicating that new car sales in WA are recovering faster than other states.

Electric cars still in short supply

The Federal Chamber of Automotive Industries (FCAI) says electric vehicle sales across the nation are improving but remain to some extent affected by supply issues.

“Electric vehicles accounted for 8 per cent of sales in April,” FCAI Chief Executive Tony Weber says.

He says this is well up from the 1.1 per cent market share recorded in April 2022.

“If you take all forms of electrification, that number has increased from 9.5 per cent to 15.4 per cent, and we know that this number would have been larger had the industry not faced global supply challenges.”

While consumer’s ability to drive a harder bargain on electric vehicles (EV) may improve slightly as supplies improve, this will be offset by recent retail pricing increases, as well as the possibility of more vehicle manufacturers moving to fixed price arrangements.

On the upside, wait times are getting shorter for some EVs, and there are signs that this will continue.

Changes such as the fringe benefits tax exemption on EVs, introduced on 1 July 2022, will also have some benefit for some consumers wanting an EV.

The exemption means those on a salary can purchase a vehicle under a novated lease arrangement with no fringe benefits tax payable (providing it is under the luxury car tax threshold), which for some people will be more financially appealing than buying an EV outright. 

With new brands and models entering the market at all levels, from small EVs to large US utes, it will be impossible for the Australian car market not to change significantly in the coming years.

Add to that huge changes in the way we buy and use our cars – such as online purchasing at fixed prices, subscription-based car features and car share programs, and it’s clear a car industry revolution is in effect.

Without a doubt, the near future is set to bring some of the most impactful market shifts the car industry that consumers have seen in decades.