The impact of the current motor vehicle market on the insurance industry

We all know that there are almost as many cars as people in Australia – 20.1 million according to the Australian Bureau of Statistics Motor Vehicle Census 2021. Australians have a mighty appetite for new cars, far bigger than the rest of the world.

Australia’s car sales increased by a third (33%) compared to the same time last year (September 2020-21), according to the Federal Chamber of Automotive Industries.

Demand high, supply low

Demand for cars remains high – even in states that experienced extended lockdowns throughout the 2020 and 2021 period. The majority of states were not in extended lockdown and saw sales percentage gains – 2.3% in Queensland, 2.3% in South Australia, 2.3% in the ACT, 2.0% in Tasmania, and 1.6% in Western Australia. Even NSW recorded decent growth of 2.0%  –  the slowest growth area was Victoria at 0.7%.

However, supply is low. Why? Semiconductor shortages.

The entire planet is experiencing a shortage of semiconductors – silicon chips that power electronic equipment. They’re found in computers, games consoles, home appliances, and of course, cars and vehicles.

This is due to increased demand for semiconductors as more people worked from home and bought up all forms of electronics including these components. Temporary factory closures and interrupted supply chains – such as the surge in the price of freight – has delayed the production and distribution of semiconductors.

This means the usual delivery times for new cars have blown out from weeks to months – sometimes up to seven months according to research by Savvy.

“Some customers are paying deposits and waiting between three and seven months to get their car on the road – and they really don’t mind waiting, either” says Savvy, Managing Director, Bill Tsouvalas.

It’s not all doom and gloom.

“Talking to dealers and looking at our own loan data, car loan applications have been strong for new certified used or ex-fleet cars, and even used cars,” Mr Tsouvalas said. So, what this means that although there is high demand for new cars, but low supply and a long wait time, this also translates to a strong used car market, with cars retaining, or in some cases increasing in value.

“Ex-fleet cars are not coming on to the private sales market with as much regularity as they used to prior to the pandemic,” Mr Tsouvalas said. “The average age of a roadworthy registered vehicle is ten point six years, an increase over last year. Fleets are holding onto their cars because there’s nothing immediate to replace them. This also means insurance brokers need to know that their insurance status will remain the same instead of the usual transition from fleet to private owner.”

So, the need for finance, and the need for insurance is as strong as ever, it’s just the mix that has changed, so it is important to ensure you position yourself to take advantage of this changing market.