THE CAR and light utility vehicle market has been flipped on its head in the past two years, with new and used vehicles fetching record prices and wait times on a replacement blowing out to a year in some cases.
A combination of the COVID 19 pandemic limiting production lines, shipping and a shortage of microchips has been blamed for the supply issues – with a fire at one of the world’s largest microchip factories in Japan last year adding to problem. Growing demand for computers and phones is also putting pressure on microchip supply.
According to Wheels Magazine some of the most popular farm vehicles are experiencing the biggest shortages. The Toyota Landcruiser 300 series is averaging eight month wait times and Rav4 Hybrid and Landcruiser 70 series has blown out to a year. Ford Ranger, Mitsubishi Triton and Isuzu D-Max are also in short supply.
While increased prices for new and used cars are a big factor for consumers, Kelly’s Finance director Paul Long said interest rates were also worth a consideration.
“We have seen interest rates for vehicle finance in the last six months increase from 2.5pc to 3pc – which on a standard $80,000 vehicle over five years is an additional $6,500 of interest expense over the life of the loan or approximately $110 per month,” Mr Long said.
“Second hand machinery will in some cases command a higher rate again and the effects of rising fixed term interest rates are multiplied.”
A quick search on carsales.com shows the $80,000 would cover a base model two-door Landcruiser, with the four-door models costing between $130,000 and $160,000. A Hilux can cost up to $80,000 and the Prado costs between $75,000 and $100,000. Ford Ranger costs between $66,000 and $74,000, Isuzu D-Max and Mitsubishi Triton from $42,000 to $74,000.
New vs used cars
A bizarre reaction to the shortage of cars has been the emergence of the used car market, with second-hand vehicles costing the same, if not more, than new cars – a premium in not having to wait.
Mr Long said there was still benefit in buying used car. But he said caution was needed when selecting finance options.
“The risk here being the purchase of a second-hand motor vehicle on an inflated market due to consumer demand and the impact on cash flow in future years,” he said.
“For example, if a farmer is purchasing a second-hand ute today, for well above the price of a new vehicle, and the vehicle has a few years of age on it already what will it be worth in five years’ time? It’s not a five-year-old vehicle but possibly a seven or eight-year-old vehicle at the end of the loan term.”
Mr Long said the company had been looking for some options outside the more recognised brands to reduce costs.
“We are seeing an increase in clients looking to take what’s available, like Chinese and Indian manufactured cars,” he said.
“But I suppose more evident is the value of second-hand vehicles versus new given the ability to buy at auction today and drive away and utilise immediately versus a six to 12 month wait on new vehicles.”
Mr Long said there were three main considerations when considering buying a new farm vehicle.
- Second Hand vehicles – do you really need to finance over five years if you’re looking to replace that older vehicle in three years’ time?
- Can you schedule to pay the GST on the purchase upfront or in the 4th month, once received back from the ATO? It’s always a false economy to finance the GST component of a motor vehicle or machinery purchase and then pay interest to the financier for the life of the loan.
- Do you need to have a loan with large end Balloon payment or will a little extra each month result in a positive equity position in the vehicle at the end of the loan compared with a potential negative equity situation?
With the inflated second-hand car market, Mr Long said consumers should be trying to maximise the trade in.
Demand also a factor, Toyota
A spokesperson from Toyota said the company was working to keep up with the demand for new vehicles.
“Demand for new vehicles is at unprecedented levels. In Australia, to support the strong demand, Toyota Australia has been continuing to working closely with our global production teams to secure as many vehicles for our market as possible, and minimise any impact,” the spokesperson said.
“Wait times will vary depending on the model, variant and specification requirements of each customer. Due to the ever-evolving nature of this situation Toyota dealers are best placed to continue to provide updates to our customers on delivery timeframes for individual orders.”