A more normal and stable inventory has meant prices for cars have falling slightly. New vehicle prices are down three to four per-cent compared to last year. Cars are coming down faster than trucks and SUVs. Consumer Matters reporter Anne Drewa has more. – Mar 20, 2024

Used car prices in Canada are coming down from last year’s peaks thanks to a surge in inventory and buyers shifting back to the new vehicle market, according to a new report.

AutoTrader released its second quarter Price Index report on Tuesday showing that Canada’s average used car price dropped eight per cent year-over-year to $36,342. That comes as stock for used vehicles jumped 28 per cent over the same period.

Luxury used vehicles are particularly seeing prices ease, declining 10 per cent from last year’s levels.

Prices are holding steady for new vehicles at an average of $66,807, up less than a percentage point year-over-year. But the available stock of new vehicles surged in that time, jumping up 70 per cent annually.

AutoTrader said car prices in both the new and used markets have receded from their peaks in 2023 now that semiconductor shortages and other supply chain snarls that delayed vehicle production are in the rear view mirror.

While motorists were relying on the used car market to purchase vehicles in a timely manner, that demand is now shifting back towards new cars, AutoTrader noted. Drivers are now trading in their old vehicles as they purchase new, helping to build up the stock of used cars in Canada.

Even if new car prices aren’t shifting into reverse, AutoTrader notes that affordability is improving in the segment thanks to declining interest rates.

Average lending rates offered directly from automakers dropped to 5.3 per cent last month, down from 6.2 per cent in November of last year, AutoTrader said.

“As new car supply returns to normal, prices flatten, and interest rates drop, affordability improves,” the report said.

The Bank of Canada delivered an initial 25-basis-point interest rate cut in June with many economists expecting the central bank to deliver more rate relief at its next decision on Wednesday.

AutoTrader expects that with additional rate cuts in the cards for the rest of 2024 and 2025, activity in the used car market in particular should pick up, as lower-income consumers are particularly sensitive to changes in borrowing costs.

Lord, C. (2024, July 23). New and used vehicle supply is surging. here’s how prices are reacting – national. Global News. https://globalnews.ca/news/10638775/used-car-prices-june-2024-autotrader/

The Canadian used wholesale market experienced a decline in prices of around -0.44% for the week ending on July 6, according to Canadian Black Book. That decline is similar to the prior week’s -0.48%, but not as close to the 2017-2019 average of -0.27% for the same period.

The car segment was down -0.57%, compared to last week’s -0.28%. And truck/SUV segment prices declined -0.33%, which (unlike cars) is a lighter decline than trucks recorded a week earlier (-0.66%).

“Less than 55% of market segments observed an average value change exceeding ±$100 this week. Among these segments, car segments saw a decrease 24% larger than that observed in truck segments,” said CBB in its Market Insights update. “Monitored auction sale rates ranged from 11% to 69%.”

In the car category, the segments that experienced the least in declines were sports cars (-0.10%), full-size cars (-0.12%), and near-luxury cars (-0.16%). The largest decreases came from prestige luxury cars (-47%), sub-compact cars (-1.18%), and luxury cars (-1.13%).

For trucks/SUVs, the largest declines were experienced in the full-size van segment (-0.88%), full-size luxury crossovers/SUVs (-0.56%), sub-compact luxury crossovers (-0.40%), and compact luxury crossover/SUV (-0.39%). The only segment to see an increase was compact crossovers/SUVs — at +0.07%.

CBB said the average listing price for used vehicles is stable, with a 14-day moving average of $34,000. The analysis is based on approximately 220,000 used vehicles listed for sale on Canadian dealer lots.

In the United States, CBB noted that June experienced a depreciation that continued into July. They said the overall market declined -0.47%, which is consistent with the prior week’s down of -0.51%. 

Lefko, P., dealer, C. auto, Phillips, T., & MacDonald, S. (2024, July 9). Used car value change noteworthy compared to trucks. Canadian Auto Dealer. https://canadianautodealer.ca/2024/07/used-car-value-change-noteworthy-compared-to-trucks/

The game has changed, and dealers need to adapt their approaches to the new market realities

During the inventory shortages of the pandemic, the sun was shining on used car operations in dealerships and they were certainly making hay. We remember fondly both how easy it was to sell anything you had in stock and the record profits that came along with it. Aged inventory was feeling like a thing of the past.

It’s a new day now. The sun is setting on the pandemic and its inventory shortages and now we’re left with a whole new landscape.

For the most part used car operations in dealerships have traditionally skewed more towards the non-prime customer and there are many reasons for this. Not the least of which is often lender availability, with some stores only having access to primarily near and non-prime lenders.

Then there’s traffic management with many used car dealers relying on 3rd party lead sources to generate their customers. Over time this combination gave rise to the establishment of the credit centres that we have come to know today.

The question is whether this model is still going to work for us tomorrow.

We can’t talk about what has changed without starting with lenders. First, there are fewer of them. Citing higher delinquency rates, and with almost no notice, BMO closed its indirect retail auto finance business in September 2023. Many non-prime lenders have also or are in the process of leaving the market.

Of those who remain, buying has changed. Discretionary decision making is becoming a thing of the past with many moving towards AI rendered decisions. For at least two major banks, if the computer auto-declines the application, it’s not eligible for review, even if all the analysts agree the computer seems to have gotten it wrong.

Rate breaks and term stretches were all but assumed in the past and deals were closed in anticipation of receiving them. Today, those too have become subject to rules. In many cases it’s not only that you can only have one or the other but the customer has to qualify to be eligible for any exceptions.

Vehicles purchased over the last couple of years were bought at the top of the market and now that market prices have seen a correction customers are coming through our doors with higher levels of negative equity.

Negative equity on deals has always been a challenge, however these numbers are skyrocketing post pandemic. The reason for that is simple. Vehicles purchased over the last couple of years were bought at the top of the market and now that market prices have seen a correction customers are coming through our doors with higher levels of negative equity.

The bottom line is that these changes are making it harder for credit centres to continue to be a profitable model. The used car stores who want to thrive in these headwinds are going to have to adjust their sails.

This means a change in process for a lot of stores. Adapting to this evolving landscape is going to require used car dealers to rethink their approach of selling cars from a model heavily reliant on credit sales to one that equally serves car shoppers.

This evolution involves integrating an OEM like process that focuses on needs analysis, walk-arounds and payment presentations rather than prebuild payment calls centered around vehicle financing and product packages.

This shift also demands a fresh approach to vehicle merchandising, especially online pricing, marking a change in how many credit centres advertise their vehicles online. Clear pricing at market value, along with detailed vehicle images are now crucial for attracting a wider audience and fostering trust, offering a straightforward and satisfying buying experience that aligns with current consumer habits.

As we look ahead it’s important to acknowledge the challenges on this path. In some stores, it would require a lot of change where the industry is often resistant to change. In some cases it requires an investment of training historically high performing staff to adapt new processes. None of that is easy but very little worth doing is easy.

As the industry continues to navigate through the post-pandemic recovery, embracing this shift could be the key to unlocking new paths of profitability and customer satisfaction for used car dealerships.

Lefko, P., Perry Lefko, C. O. and T. P., & Murphy-Brown, D. (2024, May 8). The bottom line shift for used car sales. Canadian Auto Dealer. https://canadianautodealer.ca/2024/05/the-bottom-line-shift-for-used-car-sales/