Is it better to buy a new or used car in 2021?

After a hairy 31 months of plummeting sales, we want to buy cars again. Pent-up demand combined with low supply has pushed prices of used cars higher than they have ever been. Is it better to buy a new or a used car? Is it cheaper to insure a new or a used car? We investigate.

New cars vs used cars

Sales of used cars have surged, as people reject public or other shared transport because of health concerns. Meanwhile, lack of trade-ins or newer cars coming into the used market has created a distinct shortage of good, used cars.

Moody’s Analytics reported in October 2020 that now is the best time ever to sell a used vehicle. While new car sales have dropped by over 20% from 2019 levels, used car sales have gone in the opposite direction, shooting up for 5 continuous months to 30% higher than in September last year.

People are starting to buy new cars now. October 2020 was the 31st month of decline, the longest since the GFC. Every month last year was a record low, especially May and August, which were the worst in 23 years. Car dealers are still not receiving the volume of cars they need because Covid stopped production and shipping.

Utes appeared three times in the top six highest sales in October. In general, new car buyers want Utes or SUVs to make their domestic holidays more fun. Meanwhile, those with spare cash are buying luxury cars with money they would have spent on an overseas trip.

Luckily, there are just as many benefits from buying new or buying used cars. It just depends on which benefits are valuable to you.

Benefits of buying used over new cars

There are benefits from buying used cars over new cars:

• Used cars cost less or you can get a better make and model for the price
• Sellers of used cars are usually more open to bargain
• Value depreciates more slowly – new cars lose about 40% of value in 3 years
• Well maintained and serviced used cars can be as reliable as newer ones
• Mileage may still be low, eg, demonstrator models
• Lower insurance (perhaps).

Some people buy used cars without fully checking whether they are encumbered by debt or whether they were previously written off or have some hidden fault.

Benefits of buying new rather than used cars

There are benefits from buying new cars over used cars:

• Manufacturer warranty lasts 3 to 5, even 7 years, or 60,000 to 100,000 km
• Less likely to break down
• Lower ongoing costs because parts don’t need replacing
• Latest safety technologies, driver aids and infotainment features
• More fuel efficient
• You can choose specs, such as paint colour, upholstery options and engine
• That special new car smell!

If you’re trying to decide between a used or a new car, you may wonder whether one is more expensive than the other to insure.

Is it cheaper to insure a used car than a new car?

There is no open and shut answer to this question. While a new car may have lots of desirable features, it costs an insurer more to replace it. However, some factors can bring the cost of comprehensive insurance down:

• Cars of lower monetary value
• Cars with low performance and smaller engines
• Having a 5-star safety record, eg, Toyota Corolla, Mazda 3
• Cars that crash less often, eg, station wagons and family sedans
• Cars that rarely get stolen, eg, Daihatsu, Nissan
• Expense of repairing, eg, vehicles with steel body parts are cheaper than aluminium
• Ability to replace parts easily.

Is CTP insurance cheaper for a used car?

The price of a CTP greenslip depends on many factors and vehicle age is only one. However, keeping all other factors equal, we looked at how much vehicle age affects the price of a greenslip for a 30-54 year old and a 23-26 year old driving a car or ute.

Unfortunately, older cars do crash more often. According to Australian Bureau of Statistics:

• 20% of vehicles were built before 2000 but are in 33% of crashes
• Over 30% of vehicles were built after 2011 but in only 13% of crashes.

The average age of a vehicle in Australia is 10.7 years. So while cars are becoming safer, many people are still driving older vehicles.

The greenslips.com.au calculator asks for year of manufacture. It is important to state this correctly, otherwise your make and model may not show up. Greenslip prices are based on type of vehicle as well as the age of the vehicle.

Is this a car ownership boom?

In May 2019, we wrote Peak Car – Are people getting out of cars? Now that seems to have changed.

EY’s 2020 Mobility Consumer Index anticipates a worldwide “car ownership boom” in the next 6 months. Nearly one third of people 24-39 who don’t currently own a car say they plan to get one in the next 6 months. Interestingly, 71% said they want a conventionally fuelled car and only 6% want pure electric.

Some commentators say Covid has completely reversed trends against car ownership. They anticipate a big swing back. Cars offer a safe haven and now people want to buy new cars, good used cars, or dress up the ones they already have. For instance, sales of seat covers, roof racks, replacement radios, stereos and, in particular, dashcams, have been vigorous.

Buying new cars, used cars or car accessories is certainly one way to redirect spending of $63 billion that would have gone on overseas or domestic travel. This time, car manufacturers and accessory makers are the winners.

With more cars on the road, it’s even more important to be properly insured.