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Used cars holding value for longer

Sticker prices are being pushed up as the demand for vehicles outstrips supply, with the situation tipped to continue for at least another year.
Posted on 09 June, 2021
Used cars holding value for longer

Used cars are retaining their value longer than previously as supply-chain problems are limiting the supply of 2021 vehicles for a number of marques.

Greg Hedgepeth, chief executive of Turners Group NZ, says unusual market conditions are responsible for driving up the prices of second-hand cars.

It reverses the usual trend identified by financial advice website Moneyhub, which claims most new and used cars depreciate at least 10 per cent from the moment of purchase, and up to 15 per cent a year after that.

Used 2020 models of some cars are being auctioned on Trade Me for close to the same price as the 2021 editions, reports Stuff.

The limited supply of new models, such as a six-month waiting list for the Toyota Hilux and the 2021 Kia Sportage being sold out until 2022, is one of the key factors behind the change.

Hedgepeth, pictured, notes the residual values of cars are up 10 per cent across the board, and that figure varies depending on the make or model.

He adds supply issues overseas are also driving the retention of value in late-model used cars.

“Factories have shut down because of Covid-19, there is actually some component restrictions that are happening – microchip shortages that are preventing factories across a number of brands and continents from producing the volume that they would like,” he says.

“That is exacerbated by the transport and shipping issues because, essentially, it is more expensive for a company to send a ship to New Zealand because of distance and Covid-19 parameters than it is to ship to Northern Europe or North America.”

Hedgepeth explains the Japanese car market has not been as strong as usual due to Covid-19 and other factors, such as the electronic stability control (ESC) rule.

In turn, he says that means fewer cars are available to buy at the auctions and to ship to New Zealand. He estimates there has been 20 per cent fewer new cars coming into the market of late and 10 to 20 per cent fewer used cars.

At the same time demand for vehicles remains buoyant, leading to an increase in prices, and Hedgepeth predicts the supply restrictions will continue for the next 12 to 18 months.