Fleet financials: Vehicle prices to stay high

SENIOR economist at Moody’s Analytics, Katrina Ell, discussed current economic conditions and shared vehicle market predictions at this year’s Institute of Public Works Engineering Australasia (IPWEA) Australasian Fleet Conference in Brisbane.

She kicked off her presentation by painting the broader economic picture for the audience, following what has been an “unpredictable few years”.

“Let’s just take a bit of a step back…I think the global economy has been through a lot over the past three years,” she said.

"If someone had told me back in 2019 that we were about to embark on a global pandemic that involved us not being able to leave our house, or a toilet paper shortage, and then just as the pandemic was winding down and we thought things were returning to normal, we'd have Russia invade Ukraine.

“We’d have an energy price spike, we'd have inflation go through the roof, and we'd also have central banks coming off the sidelines more aggressively than ever…I would have told you that you were absolutely crazy.

“But, this is the environment we’re living in.”

It isn’t all doom and gloom, though, as Ms Ell explained that Moody’s Analytics’ stance is Australia will avoid recession this year.

"There is no doubt that households and businesses are under quite a bit of pressure at the moment, as a result of that elevated inflation environment, rising borrowing costs,” she said.

“We do expect that Australia will slow this year, but they will avoid a recession.”

However, it isn’t looking so good over the ditch, with New Zealand expected to “already be in recession”.

“The main difference between Australia and New Zealand is of course, the monetary policy path,” said Ms Ell.

“So, while the Reserve Bank of Australia has been aggressive when it comes to rate hikes, the Reserve Bank of New Zealand has been much more aggressive.”

For fleet operators, Ms Ell broke down the used and new car markets in a post-COVID-19 Australia, first noting how prices came to be so inflated during the pandemic.

“I think that the used vehicle market was really one of the interesting stories and unexpected stories coming out of the pandemic,” she explained.

“What we saw was that the global tech and semiconductor shortage really facilitated this this unexpected consequence of a shortage of new vehicles that then pushed up used vehicles quite substantially across the globe.

“From about Q3 2020, was when we saw that the trough in used vehicles prices and then it pretty much skyrocketed until May 2022.

“Now the reason for that was the semiconductor shortage and we saw that new vehicle inventories really dried up, and then that's pushing people into the used vehicle market quite substantially.

“And this was an unprecedented kind of surge in demand for the used vehicle market.”

From mid-2022, she explained that prices have been coming down “quite gradually”, but vehicle production still isn’t quite back to where it was prior to the pandemic.

The forecast for new vehicle prices for the next couple of years, is a continued down trend as supply catches up with demand.

“We’ve already seen new vehicle prices come down a bit,” she said.

“I mean, if we're looking at the CPI basket, you’ve still got new vehicle prices elevated, they're up about five per cent year on year, so they're still adding much more than they were pre COVID-19.

“But our expectation is that they will continue to come down because there's that increased inventory coming online.”