Eighty per cent of Canadian car shoppers expect to receive their new vehicle within a month, while 20% expect to wait more than a month, according to a new national survey conducted by AutoTrader.ca. 

The survey was conducted during the ongoing global microchip shortage to better understand the importance of new vehicle delivery timeframes. That may be an issue for dealers who hope to meet consumer demands and sell more vehicles, but the situation is not without opportunity—as they can still focus on targeted marketing. 

“The survey set out to gauge just how long consumers are willing to wait for that perfect car, and if they are now more open to the influence of advertising for another automotive brand or model if the vehicle they want is out of stock or delayed,” said AutoTrader.ca in a news release. 

Key findings from the survey indicate that two out of three Canadian consumers believe the vehicle delivery timeframe and availability are either “important” or “very important.” And while they are willing to extend wait times, many consumers would consider switching manufacturer or model preferences if they find the time between vehicle purchase and delivery is too long.

AutoTrader.ca said new car buyers must wait anywhere from a few weeks to six months or more to have their vehicle delivered. Of the consumers they surveyed, 16% of respondents would consider switching to another vehicle if their first choice was not immediately available, even if the alternative option is actually their second or third choice.

Forty-two per cent are willing to wait until a later date to buy the vehicle they want if it is out of stock or its delivery is significantly postponed. However, for car shoppers that cannot immediately get their preferred vehicle, 22% would hold off on buying a new vehicle, and instead wait until the overall market has more available inventory.

“This indicates that 64% of car shoppers would rather wait at least some time for inventory to become available rather than compromise on their preferred vehicle,” said AutoTrader.ca, adding that “18% would consider buying a used model of their top car choice and get it right away versus switch models or cross shop competing manufacturers.”

How long are consumers willing to wait? According to the study, if the vehicle is not immediately available then 43% would be willing to wait less than three months, 31% would be willing to wait between four to six months, and 25% said they would wait more than six months. 

AutoTrader.ca said the situation can create opportunities for a variety of marketing efforts by dealers, “including developing ways to gauge—and potentially influence—a prospect’s shift in purchase intent while they wait for their preferred vehicle to become available or, in contrast, reinforce that decision for when the vehicle does eventually become available.”

The company said more than 52 percent of “brand loyalists” who would be willing to hold on for their preferred vehicle would still be open to changing brands or models while they wait. And 24% said they may be open to advertising and options from an alternative automaker. 

“This 24 percent could even be an under-representation given consumers typically underestimate the influence (of) advertising overall,” said AutoTrader.ca.

The update, they said, is that dealers should feel confident that “a strong, proactive marketing and communications plan” that addresses vehicle delivery challenges, in addition to offering top-notch customer service, can be a winning strategy.

They advise focusing on the following elements:

• Maintaining advertising efforts. “Keep your ad dollars working for you, so you can act on opportunities to move prospective customers into an alternate nameplate, (particularly the case with network dealerships), into another model, or even used inventory”;
• Ramp up your customer service, with a focus on flexibility—as in, a willingness to adapt your processes to keep the customer happy and informed; and
• Create a strategic communications plan that includes the moment a purchase contract is signed up to the moment the keys are handed over.

canadianautodealer.ca/2021/10/theres-opportunity-for-new-car-dealers-even-with-delivery-delays/

The findings of a recent automotive study by a reputation experience management (RXM) company points to the importance of reviews for nearly 80% of consumers—with 41% saying they will read at least five reviews before visiting a dealership. 

In its annual automotive industry report released on October 11, Reputation also found that inventory shortages are top-of-mind for customers, with online reviews mentioning shortages increasing 32.6 times from January 2021 to July 2021.

“The automotive industry has seen it all over the past year, from huge spikes in sales to inventory challenges,” said Joe Fuca, CEO of Reputation. “Through it all, dealers and manufacturers have embraced digital tools and customer feedback to create a smooth car buying experience for all.”

The company said reviews and star ratings drive customer leads—with 64% of consumer respondents saying they would travel more than 20 miles (about 32 kilometres) to a top-rated dealership.

As for what is helping dealership ratings, Reputation said customer service is the main driver of positive ratings. And that despite the increase in digital activity, purchasing a vehicle remains a largely “human-centred, face-to-face experience”—with 65% of consumers indicating that they are influenced “significantly” by in-person visits. That said, online remains the preferred choice during COVID.

The report also found a significant increase in electric vehicle (EV) reviews since 2020, and notes that the uptick can be tied to an increase in EV sales and heightened public interest.

What is not helping dealerships is the sticker price challenge. If customer service is the main driver for positive ratings, price is the opposite—the main driver for negative dealership ratings. 

“Dealerships need to manage consumers’ expectations about prices during the inventory shortage when demand is outstripping supply,” said the company in a news release. “Eighty-two per cent of consumers we surveyed with YouGov said price is an important consideration, more than any other factor.”

Reviews mentioning shortages are also around twice as likely to be negative compared to reviews about the industry in general, which can impact a dealership’s online standing.

“So, it’s not that customers are necessarily upset about a chip shortage but how dealerships are communicating with them about the ramifications of the shortage,” Reputation writes in its report. “That includes the impact on the vehicle’s price and elimination of rebates or other incentives.”

Reviews are key for consumers, inventory shortage top-of-mind. Canadian auto dealer. (2021, October 13). Retrieved October 15, 2021, from https://canadianautodealer.ca/2021/10/reviews-are-key-for-consumers-inventory-shortage-top-of-mind/.

How fares the used vehicle market for franchised and independent new car dealers this year? According to DesRosiers Automotive Consultants (DAC), the market outperformed the new vehicle market in 2020, but the first half of that year was nevertheless difficult for the used vehicle dealer community. In 2021, the recovery was more apparent. 

DAC partnered with the Used Car Dealers Association on a survey aimed at better understanding the impact that the pandemic and the supply-side microchip issue had on the used vehicle market. Nearly 500 UCDA members, including independent used vehicle dealers, and used vehicle operations of franchised new vehicle dealers, were included in the survey regarding the first half of 2021.

“Respondents indicated that average sales in their stores fell from 102.7 units in the first half of 2019 to 86.5 units in 2020,” said DAC. “However, this average sales figure bounced back to nearly the same pre-pandemic levels—102.4 units on average—in the first half of this year.”

DAC also said sales surpassed 2019 volumes for new car dealers, while independent used car dealers experienced a smaller recovery—“a dynamic directly related to access to vehicles in a market where demand often exceeds supply.”

They said ongoing supply issues for new and used vehicle dealers were a topic of “particular concern” during the first six months of 2021, with dealers noting “extreme difficulties” in sourcing pickup trucks and SUVs. In comparison, passenger cars were easier to source, but there were still challenges. And younger vehicles of one-to-three and four-to-seven years old were more difficult to source than older vehicles.

Based on the survey, only 6.2% of dealers. experienced overall price decreases for their used vehicles, with the largest category (38.3%) noting average price increases of 11-20. On the other end, 18.2% of respondents experienced price increases of more than 20%. 

“The sentiments of used vehicle dealers paint a clear trend for the first half of this year,” said Andrew King, Managing Partner of DAC. “Although sales volumes bounced back, limited supply led to clear increases in the prices of used vehicles as demand spiked and vehicles continued to flow south across the border.”

How does the used vehicle market fare? Canadian auto dealer. (2021, September 24). Retrieved September 29, 2021, from https://canadianautodealer.ca/2021/09/how-does-the-used-vehicle-market-fare/.

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According to Canadian Black Book’s (CBB) Canadian Auto Market Update, buyers continue to show caution amidst inflated prices and low inventory levels, causing the Canadian used wholesale market to remain relatively flat this week. 

Drops were seen in both the Car (-0.07%) and Truck/SUV (-0.06%) segments. The Sporty Car segment had the largest price increase (+0.28%) within the Car segment. Luxury Cars (-0.55%), Near Luxury Cars (0.40%) and Compact Cars (0.20%) were the only Car segments to have price declines for the week.

The Small Pickup segment saw the largest price increase overall (+0.46%), followed by Full-Size Vans (+0.31%) and Sub-Compact Luxury Crossovers (+0.29%). The largest drop in prices for the week came from Mid-Size Luxury Crossover/SUVs (-0.35%) and Full-Size Luxury Crossover/SUV’s (-0.33%).  

The 14-day moving average listing price for used vehicles continued to climb, surpassing $27, 680, an increase of approximately $200 from the historic high seen last week. The number of active used listings continues its decline, with the 14-day moving average sitting at about 131,500 vehicles.

Days-to-turn increased by a day, up to 50 days this week, as the positive movement the industry experienced in April may be softening.

The CBB Listing Volume index currently sits at 1.04, a decline once again compared to last week. Although the index has noted a week by week decline, the overall listing volume remains much higher compared to the same time last year. 

The Canadian wholesale market is showing signs of stabilizing, with just small decreases being observed. Supply remains low, and demand has cooled. According to the Canadian Black Book’s report, “more sellers are setting floors higher than the current market will bear, which has been contributing to lower sell rates and values this week.” The U.S. market exchange rate remains favourable for exportation, but cooling markets may cause some hesitancy amongst buyers.

Flat week for Canadian USED wholesale market. Canadian auto dealer. (2021, August 13). https://canadianautodealer.ca/2021/08/flat-week-for-canadian-used-wholesale-market/.

Semiconductor shortage could continue to hamper inventory through next year

Posted: August 02, 2021
Last Updated: August 02, 2021

Ted Smith, sales manager at Jim Tubman Chevrolet in Ottawa, has been selling cars for 28 years and says he’s never seen an inventory problem like this year. (Amanda Pfeffer/CBC)

In a normal year, the vehicle lot at Jim Tubman Chevrolet in Ottawa is full with hundreds of new cars.

On Friday there were only 19 — and some had already sold earlier that day.

“Obviously it’s a little crazy right now, not just for us but everywhere, ” said Ted Smith, senior salesperson at the dealership.

Auto sales have flipped from a buyers’ market last year to a severe shortage in 2021, one that has people fighting to find popular models before they’re snapped up or waiting two to four months for orders to arrive.

The issue is a worldwide supply shortage of semiconductors, which are now found in most modern vehicles and operate everything from brakes to air conditioning to windshield wipers. The shortage is caused in part by interruptions in production during the pandemic.

The car production slowdown has driven up the price of used vehicles so much, Smith said, that one that’s a year-and-a-half old can now sell for more than what the owner initially paid.

• Why it might be wise to hold off on buying a car for a little while longer

With multiple buyers fighting over new vehicles, no one’s dickering over price, said Greg Layson, digital and mobile editor of Automotive News Canada.

“This entire inventory situation boils down to Economics 101, supply and demand,” he said.

Layson said in his reporting, he’s found that incentives for new cars — used in the past to bring in customers — are at an all-time low.

While there are stories about U.S. customers paying more than the sticker price, Layson said he hasn’t seen evidence of that in Canada.

The semiconductor shortage is proving to be a big problem, as they’re found in most modern vehicles and operate everything from brakes to windshield wipers. (David Zalubowski/The Associated Press)

Industry-wide slowdown

The supply problem could get worse before it gets better, however, as more than a dozen auto manufacturers in North America have slowed or halted production over the last several weeks because of the semiconductor shortage.

Ford’s chief financial officer told investors last week that the shortage could drag on through early next year.

• Windsor Assembly Plant on hiatus for the rest of July
• GM extends closure of Ontario factory as semiconductor chip shortage deepens

That’s bad news for dealers wanting to make up for losses incurred last year, when sales dipped to roughly 1.5 million vehicles in Canada, compared with 1.9 million in 2019, said Oumar Dicko, chief economist with the Canadian Automobile Dealers Association.

“There’s a lot of pent-up demand, new demand created by the pandemic, and now we have to find vehicles to provide for those customers,” said Dicko, whose organization represents more than 3,200 new-car dealerships in Canada.

He said a recent survey of members found that more than 90 per cent expect the inventory issue will be their biggest problem for several more months. 

Canada considering own semiconductor supply

“We’re in a once-in-a-lifetime crisis in inventory,” said Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers’ Association.

Volpe said several manufacturers have been rolling through a series of “brown-outs,” building incomplete cars that get parked until the semiconductors show up. 

• When the chips are down: material scarcity in the tech industry

He said Canada currently doesn’t produce large amounts of semiconductors, an issue that was front and centre in discussions with federal officials and the industry in a meeting last month that focused on how Canada could create its own supply.

“I think COVID taught us there are just some goods that you have to have a domestic reserve of,” Volpe said. “Not just for cars but for everything else that we’re doing.”

Inflation is at its highest level since 2008, thanks in very large part to a single item whose price has been going through the roof: Cars.

Why it matters: What goes up must generally come down, and there are strong indications — like data last week from prominent used car marketplace Manheim — that the unprecedented rise in auto prices is peaking. In the second half of this year, cars might well be a force making inflation numbers look artificially low.

By the numbers: Used car and truck rental prices rose 12% in June, and 88% from a year previously. Used car prices were up 11% in June and 45% from a year ago, while new car prices were up 2% and 5% respectively.

How it works: The rise and rise of car prices has been one of the dominant inflation narratives of 2021. The cause has been a shortage of new cars, which in turn has been caused by a shortage of the computer chips needed to make any modern car run.

• Cars need as many as 1,400 different computer chips, each of which has to go through a rigorous quality-control process that ensures it will keep on working for at least 20 years.
• Lead times for such chips can be as long as 180 days

What they’re saying: “These chips are not fungible assets,” Tirias Research analyst Kevin Krewell tells Axios. “You can’t just move them to another fabrication facility with spare capacity.”

Flashback: Fire and ice have both closed chip plants unexpectedly this year, making it harder for them to reconfigure their production lines to go back to making the auto chips that manufacturers desperately need.

• Automakers slashed chip orders when the pandemic hit in March 2020, causing chip makers to pivot to making components for uses that were booming, such as webcams.
• More recently, automakers around the world have been forced to cut production in the face of the shortages. AutoForecast Solutions says the industry faces a loss of 6.2 million vehicles globally because of the chip supply line disruption, while AlixPartners sees a drop of 4.9 million vehicles just in the first half of this year.
• Volkswagen has warned that the chip shortage could get even worse in the second half of this year.

The big picture: While new-car prices haven’t risen enormously (sticker prices are sticky, it turns out), the new-car shortage has meant that car-rental companies, faced with booming demand, have become buyers rather than sellers of second-hand vehicles, upending the market’s normal delicate balance.

What’s next: Wholesale auto prices seem to have peaked, which means that retail prices are likely to follow them down. Manheim chief economist Jonathan Smoke says that retail prices have been lagging wholesale prices by about 4 weeks this year — and that the decline in wholesale prices started 5 weeks ago.

The record-breaking rise in used-car prices is probably coming to an end — and with it a key driver of the recent spike in U.S. inflation.

The bellwether of the industry — the wholesale market where dealers buy and sell in bulk — has already topped out and prices of individual secondhand cars should follow in a matter of weeks, said Zo Rahim, industry analyst at Cox Automotive. Cox owns Manheim, the biggest U.S. auction house selling millions of vehicles every year.

Soaring prices for secondhand vehicles have helped push U.S. inflation to the highest in more than a decade. The cost of used cars and trucks climbed 10 per cent in April, and another 7.3 per cent in May when they were responsible for one-third of the overall rise in consumer prices.

All kinds of pandemic-driven shifts in supply and demand have contributed to the run-up. But there are signs that it may be peaking — bolstering the Federal Reserve’s argument that the spike in inflation as the economy reopens will turn out to be largely transitory.

“Wholesale prices as of right now are at their peak and should start to come down,” Rahim said. “We are seeing a decelerating pace of price increases in the first two weeks of June, compared to what has been just an absolute surge.”

Prices for individual vehicles typically track the wholesale market, but with a lag, he said. That likely means “a few more weeks of retail prices increasing, before they start to follow suit.”

Manheim’s wholesale index of used-vehicle value was 36 per cent higher than a year earlier as of mid-June –- down from an annual rate above 50 per cent in April. One effect of higher prices has been to push the average age of vehicles on U.S. roads up to a record 12.1 years in January.

The volatile U.S. auto market was cited by Fed Chair Jerome Powell in a House hearing on Tuesday to help explain the outlook for consumer prices.

“A pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the re-opening of the economy, such as used cars and trucks,” Powell said. “Those are things that we would look to stop going up, and ultimately to start to decline.”

He added a cautionary note: “These effects have been larger than we expected and they may turn out to be more persistent than we expected.”

Car dealers expect the strong demand to persist. CarMax Inc., which sells about 1.2 million vehicles a year from 220 locations, says it’s hiring an additional 5,000 auto professionals this summer, and will offer training programs to entice workers from other industries.

The jump in used-car prices has a variety of causes. Some are unique to the auto industry, and others are playing out across the economy. Some result from pandemic trends that are already fading, and others from shifts in behavior that could take longer to return to pre-COVID norms –- if they ever do.

Following is an overview of some of them.

Demand conditions are unusual…

U.S. household incomes actually rose on aggregate during the pandemic, as government aid and expanded benefits more than offset lost wages. And since lockdowns limited spending opportunities, much more of the money got stashed away than usual.

“Consumers are sitting on savings that they have accumulated over the last 12 months, and are leveraging that money to buy durable goods such as cars,” said Rahim, the Cox Automotive analyst.

…And so is supply

Auto factories all over the world shut down at the worst points of the pandemic. As they tried to crank production back up, a new problem emerged: shortages of semiconductors, key components for in-car touchscreens and other functions like power steering. Global output of new vehicles in the first quarter was down more than 2 million units from 2019.

That’s had a knock-on impact on the used-car market in the U.S. With a squeeze on the availability of new vehicles, many buyers turned to secondhand ones instead.

Businesses changed their behavior…

Among those buyers, rental companies played a key role. They usually replenish their fleets with new cars. But this year, after selling hundreds of thousands of cars early in the pandemic as travel demand slumped, they’ve been turning to secondhand ones instead.

Companies like Hertz Global Holdings Inc. and Enterprise Holdings Inc. say they’ve been expanding their fleets by buying used cars where they can find suitable ones — contributing to the surge in demand, where they’d normally be adding to supply by selling their older vehicles.

…And so did consumers

As well as having more savings to spend on buying a car, many Americans have also soured on other kinds of transportation during the pandemic — making cars even more essential to millions of families.

All forms of travel were sharply curtailed in the first months of the U.S. pandemic, but car usage never declined as much as planes or public transit — and it’s come much closer to regaining pre-COVID levels.

Source: Used-car prices are poised to peak in U.S. after pandemic surge – BNN Bloomberg

The Canadian used vehicle wholesale market continues to do well in terms of overall weekly performance, with an increase of 0.51% for the week ending on May 18 — up from last week’s 0.46%, according to Canadian Black Book.

In its weekly automotive market update, CBB said the increases seen in both the car and the truck/SUV segments were well above average week-over-week price increases. 

“Cars led the market again with a strong up-tick in prices (+0.55%) which were stronger weekly increases than the prior week; similarly, truck/SUVs had another slight momentum up-tick in weekly increases at +0.47%,” said CBB in its report.

Most car segments managed a weekly increase, with full-size cars (+1.25%) leading the overall category, followed by premium sporty cars (+0.92%) and prestige luxury cars (+0.69%).

However, the sub-compact car segment had the weakest performance with -0.10%, and it was the only car segment with a weekly decline in prices. Compact cars also had a relatively slow week with an increase of 0.11%, and trailed behind the other categories (with the exception of subcompact cars).

As for trucks/SUVs, most segments saw positive weekly changes, with full-size crossover/SUVs leading the way thanks to a weekly increase of 1.60%. This was followed by minivans (+0.92%), full-size pickups (+0.62%), and small pickups (+0.61%).

Subcompact crossovers were down -0.37%, and had the weakest performance this week out of all segments. It was also the only truck/SUV segment showing a decline in prices.

“While still in positive territory, the increases seen this week were similar to the previous week,” said CBB. “Supply remains low with extremely high demand on both sides of the border. Upstream channels continue to tap supply before it can be available to wholesale markets.”

Sell rates are still strong as buyers continue to demand inventory. Some rates were as high as 85% this week; CBB said low supply and high demand “keeps any saleable vehicle from returning to the auction block a second time.” 

CBB expects the high demand at auction to continue this week, as the lack of new vehicle supply continues to increase demand for used vehicles.

Source: https://canadianautodealer.ca/

The summer months offer endless opportunities for fun outdoor adventures with family and friends. Your customer might have dreams of cruising down the highway with a motorcycle pack, boating on their favorite waterway, or driving across the country in their new recreational vehicle. But, before they can set foot on the gas, they will need help figuring out how to pay for their new leisure vehicle. 

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