Ruqayyah Snyder
The price of second-hand cars in Australia has been driven up by a number of factors, including the pandemic, supply chain issues, and import tariffs. With the pandemic causing long delivery times and a perceived risk of taking public transport, many people turned to the second-hand car market. This increased demand, coupled with a decrease in supply, led to a seller's market and higher prices. The value of the Australian dollar, import duties, and taxes also play a significant role in the high cost of second-hand cars in Australia. However, it's important to note that the market is expected to correct itself, with oversupply in 2025 likely to force prices down.
| Characteristics | Values |
|---|---|
| High taxes | 20% of car prices go to the government |
| Import tariffs | Import duties were as high as 59% for luxury cars |
| Low value of the Australian dollar | The Australian dollar is at a historic low, making importing cars more expensive |
| Supply chain issues | Global supply chain issues caused by the pandemic and the war in Ukraine have impacted the availability of raw materials and microchips, increasing production costs |
| Demand | High demand for specific vehicle models in Australia, particularly mid-range luxury vehicles, has driven up prices |
| Inflation | Inflation has increased the cost of raw materials, shipping, and microchips |
| Electric vehicles | Lack of government incentives for EV adoption and manufacturer reluctance to sell EV models in Australia due to lack of charging infrastructure have made EVs more expensive |
| Consumer behaviour | Consumers have been opting for second-hand cars due to long waiting times for new cars, increasing demand and prices for used vehicles |
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What You'll Learn
Supply and demand
The laws of supply and demand have had a significant impact on the high prices of second-hand cars in Australia.
During the pandemic, there was a shortage of second-hand vehicles, which led to an increase in prices. This was due to several factors, including long wait times for new cars, a preference for private transport over public transport, and supply chain issues. The pandemic caused global supply chain disruptions, including a shortage of semiconductor-grade neon, a compound used in car chips, which impacted the supply of new cars.
The increase in new car prices has also contributed to the rise in second-hand car prices. With new car prices becoming more expensive, some consumers opt for second-hand cars, increasing the demand and driving up prices. Additionally, the weak Australian dollar has made importing cars more costly, further impacting prices.
However, there are indications that the second-hand car market in Australia may be shifting towards a buyer's market due to oversupply. In 2025, there was an increase in used vehicle listings, with a significant drop in sales, indicating a potential surplus of second-hand cars. This oversupply could lead to a decrease in prices, making it a favourable market for buyers.
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High taxes
The tax system in Australia entails multiple tax types, and approximately 20% of car prices go to the government. For example, according to Porsche, Australians avoid purchasing the 918 model because $300,000 of the fees ($1 million in total) go to the government. This high taxation contributes to the overall high cost of cars in Australia, including second-hand vehicles.
Furthermore, import tariffs and duties also play a role in increasing the cost of cars in Australia. Since all cars are imported, the low value of the Australian dollar relative to other currencies, such as the US dollar, makes importing cars more expensive. These costs are then passed on to Australian consumers. Historically, import duties for luxury cars were as high as 59% even before the current high taxes were introduced.
The combination of luxury car taxes, GST, and import tariffs results in a significant tax burden on car purchases in Australia, which is reflected in the high prices of both new and second-hand cars. While there is an oversupply of used cars expected in 2025, which may lead to a decrease in prices, the high taxes imposed on cars will continue to impact the overall cost for Australian consumers.
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Import tariffs
Import duties have historically been high in Australia, especially for luxury cars, which faced import duties as high as 59% before the introduction of other taxes. These import tariffs, along with other taxes and charges, contribute to the high cost of cars in Australia, including second-hand vehicles.
The Australian government's luxury car tax also significantly impacts car prices. This tax applies to both new and used luxury vehicles, pushing up the price of these cars even if they are produced in Australia. The luxury car tax is a significant contributor to the overall cost of cars, with approximately 20% of the price of a car going to the government in taxes.
In addition to import tariffs and the luxury car tax, other factors contributing to the high cost of second-hand cars in Australia include supply and demand dynamics, with a high demand for mid-range luxury vehicles, and supply chain pressures caused by global events such as the pandemic and semiconductor shortages. These factors have led to increased prices for both new and used cars in the Australian market.
It is important to note that while buying a second-hand car in Australia can be more affordable than purchasing a new one, the prices of used cars are still significantly higher than in other countries. The high cost of cars in Australia is driven by various factors, including import tariffs, taxes, and other market dynamics.
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Inflation
The cost of raw materials, shipping, and microchips has increased due to inflation, leading to higher prices for new vehicles. This has also impacted the second-hand car market, as the increased cost of new cars has lifted the price of second-hand models. During the COVID-19 pandemic, the supply of second-hand vehicles decreased, and the market is still recovering. The pandemic also caused a shift in consumer behaviour, with people opting for second-hand cars due to long waiting times for new cars and concerns about using public transport. This increased demand for second-hand cars further drove up prices.
The weak Australian dollar has also contributed to inflationary pressures on car prices. As Australia imports all its cars, the low value of the Australian dollar relative to other currencies, such as the US dollar, has made importing cars more expensive. These increased costs are passed on to consumers, making it more expensive to buy a car in Australia than in other countries.
Additionally, the Australian government's luxury car tax adds to the inflationary pressures on car prices. This tax, which can account for up to 20% of the car's price, applies to both imported and domestically produced luxury vehicles, making them even more expensive.
While inflation has been a significant factor in the high cost of second-hand cars in Australia, it is important to note that other factors, such as supply chain issues and semiconductor shortages, have also played a role in driving up prices.
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Pandemic-related supply chain issues
The COVID-19 pandemic significantly impacted the Australian automotive industry, causing supply chain issues and massive inflation. The pandemic disrupted the supply chain, causing delays in the delivery of parts and components, resulting in a slowdown in production and a decrease in the number of vehicles available for purchase.
Before the pandemic, chip supplies were already sparse, and the pandemic further exacerbated the issue. When the pandemic hit in March 2020, consumer demand for new cars decreased as millions of people started working from home. However, demand for consumer technology products that require microchips, such as smartphones and computers, increased. As a result, chip suppliers could not keep up with the demand when it started to rise again, leading to a significant slowdown in vehicle production.
The automotive industry's just-in-time (JIT) manufacturing approach, which aims to minimize inventory costs by receiving parts as they are needed, was also affected by the pandemic. With the supply chain disrupted, manufacturers had to adapt to new approaches to meet consumer demand.
The pandemic, along with other factors such as trade wars, raw material shortages, and natural disasters, contributed to a global semiconductor shortage that impacted the Australian automotive industry. The shortage of semiconductor-grade neon, with half of the global supply coming from Russia and Ukraine, further strained the market.
The impact of these pandemic-related supply chain issues resulted in a decline in new car sales in Australia, with a 5% average decline compared to 2019, amounting to approximately 500,000 cars. This contributed to the overall global decline of 10-11 million units annually since 2019.
While the pandemic initially caused a decrease in demand for vehicles, it also led to increased wait times and stock shortages. This resulted in an oversupply of used cars in the market, with active used vehicle listings increasing by 63.4% in 2024 compared to 2023. As a result, second-hand car prices are expected to tumble in 2025 as the market corrects itself.
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Frequently asked questions
The COVID-19 pandemic and the resulting supply chain issues have led to a shortage of semiconductor-grade neon, which is essential for car chips, and this has driven up the price of second-hand cars. The pandemic also led to long delivery times for new cars and a perceived risk of taking public transport, so many people turned to the second-hand car market, increasing demand.
Yes, in some instances, second-hand cars have been selling for more than their new equivalents. For example, a second-hand 79 series GXL Land Cruiser sells for over $100,000, while a new one retails for about $80,000.
Second-hand car prices are expected to fall in 2025 due to an oversupply of used models. However, it is unclear if prices will return to pre-COVID levels.
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