While used values are facing little change over the last few months — and compared to the last year — the positive sign is that the sector is stable, according to the latest numbers.

Canadian Black Book’s Used Vehicle Retention Index for June 2023 showed that it sits at 158.5 points, a 0.3-point decrease from May. Year-over-year, the index is down 1.76 per cent.

“The Canadian wholesale market continues to be relatively stable this year without the wild swings up or down seen over the last few years,” observed David Robins, principal automotive analyst and head of Canadian vehicle valuations at Canadian Black Book. “Lack of both new and used car supply continues to be a challenge that we face with the situation slowly improving.”

The news could be seen as both good and bad news for consumers. Good in the sense that there haven’t been “wild swings” in pricing but values still remain elevated. For the aftermarket, so long as values remain high, consumers may opt to keep their vehicle, rather than replace it. And even if they choose a used option, they’re still likely to remain as aftermarket customers.

Last March, the index hit its peak of 165 points, representing the value of used vehicles being 65 per cent higher than the index’s benchmark. The index was last closest to the benchmark in late summer 2020 with a score of 100.5 points.

The index is using Canadian Black Book’s calculated wholesale average value on two to six-year-old used vehicles, as a percent of the original typically equipped manufacturer’s suggested retail price.

In the U.S., meanwhile, the Manheim Used Vehicle Value Index is down 10.3 per cent from a year ago, sitting at 215.1 points.

Unlike in Canada, “stability” is not a word they’re using to describe the state of current affairs.

“The wholesale market story for the first half of 2023 can be summed up in one word: Volatile,” said Cox Automotive chief economist Jonathan Smoke. “The result, however, is not unexpected. Larger upswings during the first quarter and a downward trajectory that began in the second half of March have brought us to roughly where we expected to be at this point in the year. The good news is that the worst of this is likely behind us. Used retail sales held steady in June and are showing signs of strengthening — inventory levels are generally balanced between supply and demand.”

The group also reported that used vehicle sales were down 4 per cent in June compared to May.

 

Malik, A. (2023, July 21). Used values remain flat. Auto Service World. https://www.autoserviceworld.com/used-values-remain-flat/

The pandemic and the vehicle shortages that followed it created chaos in the automotive market. Some brands managed to consistently get some inventory to dealers, some saw availability ebb and flow, and some brands experienced sustained inventory troubles that continue to persist today.

Amidst these unprecedented dynamics, the new light vehicle sales market share among reporting Canadian brands saw significant changes. While a single snapshot can not tell the whole story the chart above details the percentage change in market share from 2019 year end compared to the first half of 2023. Using this metric, a new entrant, Genesis, understandably established itself as the standout performer, with the brand seeing it’s market share grow by 395% between 2019 and the first half of 2023, now accounting for 0.4% of the market. Another lower-volume player in the market to see significant gains was Maserati whose market share grew by 114%. The luxury market as a whole has been booming in 2022 and 2023 – so it is also no surprise to see Lexus and Porsche performing strongly with market shares rising 50% and 46%. DAC will be covering the remarkable performance of the luxury segment in more detail in a future release.

Amongst higher volume brands Mitsubishi also saw significant success since 2019, with market share rising 65% while Kia rounds out the top 6 with a 32% gain. In terms of raw percentage point increase, General Motors saw its market share rise from 13.4% in 2019 to 15.7% for the first half of 2023. “The automotive market is still facing unprecedented dynamics” commented Andrew King, Managing Partner at DAC. He continued “Vehicle availability has acted as a key determinant of performance alongside more traditional variables such as consumer choice and pricing, leading to some unusual shifts in market share.”

 

Azarov, D. DesRosiers Automotive Consultants Inc. (2023, July 19). The Pandemic and Vehicle Shortages: Ongoing Shifts in Market Share. 

Car-shopping turned into a nightmare for many Canadians during the pandemic – and the bad dream isn’t over yet.

Global automotive supply chains, which were thrown into disarray during COVID-19 by factory shutdowns and parts shortages, meant dealership lots had few vehicles on offer. Meanwhile, consumers unable to find new cars and trucks turned to the used-vehicle market,sending prices there to unprecedented heights.

With the global health emergency now over, supply chains have largely recovered, but pent-up demand and high interest ratesmean buying a car – either new or used – is more expensive than ever.

Canadians spent more than $46,000 on average to buy a new vehicle in May, up from $35,000 in 2019, according to research firm J.D. Power. For used cars and trucks, average prices are hovering a little above $35,000, down only slightly from a pandemic high of nearly $40,000, according to automotive analytics company Canadian Black Book.

At the same time, pricier auto loans are making it increasingly hard for Canadians to handle those high purchase prices with manageable monthly loan payments.

Used car prices are surging. Here’s why you should buy now

“There really isn’t a deal to be had in the new-car market,” said Daniel Ross, senior manager of industry insights and residual value strategy at Black Book. And as more demand flocks to the used-car market, prices there also remain elevated, he added.

Part of the problem is a long-term shift in auto manufacturing. Even with vehicles now rolling off factory floors and into showrooms at a more normal pace, prices are high in part simply because cars are more expensive to make, said Charles Bernard, lead economist with the Canadian Automobile Dealers Association. “Vehicles are basically computers on wheels.”

Andelectric vehicles, which are particularly complex to make, are further driving up average prices, he added.

So far, though, those high price tags aren’t keeping consumers at bay, according to Mr. Bernard. The market is still working its way through demand from Canadians who weren’t able to buy a car during the pandemic because of widespread shortages.

“They’ve been waiting for cars for so long that I don’t think the patience is there any more to maybe wait and see the prices go down,” he said.

Is now a good time to buy a new car, or will prices go down in 2023?

High prices for new vehicles are also putting upward pressure on used-vehicle values, said Black Book’s Mr. Ross. That’s in part because prohibitive price tags for brand new rides are forcing more people to buy used, he said. In part, it’s also because higher manufacturer’s suggested retail prices are also driving up the expected value of used cars in some cases, he said.

While the average price of a used passenger vehicle has come down from pandemic records, prices remain 20 to 25 per cent above pre-COVID levels, Mr. Ross said.

And for consumers who need to finance their car purchase, higher overall lending rates are adding another significant financial squeeze.

Auto loans on new cars had an average interest rate of 6.6 per cent in the first three months of 2023, more than double the 3-per-cent low in the third quarter of 2020, according to data from Equifax and Dealertrack Canada.

The average loan rate for used vehicles climbed to 10 per cent at the beginning of 2023, up from a low of 7.5 per cent in the second quarter of 2021, the same data shows.

Meanwhile, zero per cent financing – a hallmark of car ads in the era of low interest rates – has virtually disappeared. Such incentives, which used to make up 10 to 15 per cent of auto loans on new vehicles, now account for less than 1 per cent of them, said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada.

For new vehicle purchases, Canadians were paying an average of $749 a month on loans issued between January and March of this year, according to the Equifax and Dealertrack Canada data. That’s an increase of more than 20 per cent from an average loan payment of $611 a month for loans issued at the beginning of 2020.

But the impact of pricier vehicles and expensive borrowing is even starker in the used-car market, Ms. Oakes said. Here average auto loan payments jumped by more than 30 per cent to $625 a month in the first three months of this year, from $473 in the same period in 2020.

What’s more, while the average loan term for new vehicles has remained roughly the same – around seven years – over the past three years, Canadians are now increasingly resorting to longer terms when buying used vehicles.

The average term length for a loan on a pre-owned car was 73 months in early 2023, up from 69 months before the pandemic.

Those large balances and longer loans on used vehicles could become a headache for both consumers and lenders if resale prices decline steeply once supply and demand in the market go back to normal, Ms. Oakes said.

When used-car values finally come back to Earth, consumers could get stuck with loans worth much more than the vehicle they’re driving, she said.

That’s a concern for lenders, too, because “if people start missing payments – the lenders, even if they repossess the vehicle, there’s no value in it.”

With demand for used cars and trucks still so strong right now, those steep value declines aren’t an imminent concern, Ms. Oakes said. But, she added, “that’s something that we’re worried about in a couple years down the line.”

 

Alini, E. (2023, July 5). Car-shopping this summer? Brace for a double-whammy of high prices and high loan rates. The Globe and Mail. https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-car-shopping-this-summer-brace-for-a-double-whammy-of-high-prices-and/