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/

CDK Global, owned by Brookfield Business Partners, underpins virtually every element of auto retailers’ day-to-day business

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A dealership in Phoenix is handwriting paper contracts and gauging creditworthiness with guesswork. A Jeep owner in Alabama keeps calling about when a replacement part will be in stock. A family in New Jersey is waiting for word on when they can take delivery of their new Audi.

Such is life for auto retailers and their customers across the United States and Canada after CDK Global Inc. — a software provider to some 15,000 dealers — was waylaid by debilitating cyberattacks. The barrage began June 19, costing U.S. dealers a burst of business on a federal holiday. CDK has warned that a second incident Thursday is likely to keep its systems down for several more days.

The attacks have had a crippling effect on an industry that topped US$1.2 trillion in sales last year just in the U.S., and is in the thick of an end-of-quarter sales push. CDK’s core product — a suite of software tools referred to as a dealership management system, or DMS — underpins virtually every element of auto retailers’ day-to-day business.

There are only a handful of DMS companies for dealers to choose from after decades of consolidation within this corner of the car-retailing industry. As a result, thousands of stores are highly reliant on CDK’s services to line up financing and insurance, manage inventory of vehicles and parts, and complete sales and repairs.

CDK’s parent, Brookfield Business Partners LP, had its worst trading day since October — plunging 5.7 per cent on Thursday — and extended its decline Friday. Shares in dealer groups AutoNation Inc., Group 1 Automotive Inc. and Sonic Automotive Inc. also slumped.

Representatives for Ford Motor Co., Volkswagen AG, Mercedes-Benz Group AG and BMW AG confirmed some of their dealers use CDK and said they’re working with those affected by the disruption. Other car companies didn’t immediately respond to requests for comment.

For Joshua Adams, the Jeep owner in Millbrook, Ala., CDK’s outage comes at an inopportune time. He’d already gone weeks without his 2020 Renegade sport utility vehicle as he waited for a warranty claim to be sorted out.

This week, he called his dealership to check if the final part needed to fix his vehicle had arrived, as expected. The service centre was unsure, saying it was impossible to know because of the hack.

“They can’t tell me where my part is or when it will arrive,” Adams said. “We are just up in the air.” He expects the delay will cost several hundred dollars in additional expenses for a rental car he’s driving in the meantime.

In New Jersey, the Lanni family was excited to take delivery of a new Audi Q5. Daniel Lanni and his wife had removed the child seats from their old vehicle so they’d be ready for plopping into the new SUV. But on June 19, their dealer called to say the store’s computer system was down, and it wasn’t clear when they’d be able to take delivery.

Lanni and his wife re-installed the car seats for their children – ages 3, 5 and 8 – and said they hadn’t heard more from the dealer as of Thursday afternoon.

“The kids were really excited,” said Lanni, a 41-year-old commercial real estate broker. “They’re upset and now they’re just regularly asking about it.”

Alex Padron, a sales manager at a Nissan dealership in Phoenix, said that business was “almost at a standstill” on Thursday. Everyone who’s purchased a vehicle from the store since 2014 — when it began using CDK’s software — has data stored in the system, he said.

“It’s probably more than 50,000” customers, he said.

The dealership is now handwriting paper contracts and finding novel ways to get deals done. He said workers in the finance department have had to “guess” customers’ creditworthiness based on “whatever information they can gather.”

Since the attack began, the dealership has been able to process about half the transactions it usually can. Anything complicated — say, a purchase involving a trade-in or unusual financing — simply can’t get done.

“For this store, I’d like to have 10 complete deals done a day,” Padron said. “Five, six, seven would be nice today.”

 

 

Carlson, K., Gorelick, E., & Bleiberg, J. (2024, June 21). Car dealers in U.S., Canada reel from Cyberattack | Financial Post. Car dealers in U.S., Canada reel from cyberattack on critical software provider. https://financialpost.com/news/retail-marketing/car-dealer-chaos-canada-cyberattack-hits-sales

—With assistance from Wilfried Eckl-Dorna, Monica Raymunt and Keith Naughton.

 

 

Last week the Bank of Canada cut its benchmark interest rate by 25 basis points, the first cut since the beginning of the pandemic in 2020. In light of this, we at DAC thought it would be timely to take a look at consumer price index data from key parts of the automotive industry. For April 2024 the picture continued to be one of increases, albeit with one glaring exception. Leading the gains was insurance premiums, the CPI for which increased 6.8% compared to April 2023. Gasoline, not far off, also saw a 6.1% increase. In the critical maintenance category, prices increased 4.2% with parts also up 2.9%, showing an automotive aftermarket that continues to see price gains.

The picture does change when looking at vehicle prices, however, with the CPI for the purchase of new passenger vehicles up a modest 1.4% compared to April 2023. Used passenger vehicles, which had experienced sharp price growth during the semiconductor-related shortages, saw CPI decline 2.3% as of April 2024. “While consumers have seen some easing in the price growth for vehicles themselves, the costs in the aftermarket as well as gas and insurance continued to climb” commented Andrew King, Managing Partner at DAC. He continued, “Hopefully price pressures will continue to ameliorate, and interest rates fall further, as the automotive market enters a somewhat unsteady period.”

 

Azarov, D. (2024, June 12). Auto industry prices continue to grow as rate cutting begins. DesRosiers Automotive Reports, DesRosiers Automotive Consultants

Price declines and elevated costs are making the used car market more challenging. Photo Huw Evans

Dealers are having to shift as used car prices decline and borrowing costs remain elevated.

Anomaly is perhaps the best way to describe what happened to the used vehicle market between 2020 and 2023. The COVID-19 pandemic and resulting lockdowns caused OEMs and their suppliers to curtail production. For dealers, this had several implications. Firstly, it reduced the availability of new vehicles for a few years. Secondly, it put pressure on lease returns and used vehicles. Plus, with public transit ridership falling off a cliff due to social distancing requirements, a whole host of new vehicle shoppers entered the market.

The result? Rising vehicle demand and with it, transactional prices. In fact, prices became so elevated that in many cases, three and four-year-old vehicles were commanding more money than they did when new. Dealers frequently found themselves scrambling for used inventory and when they were able to get it, turned record profits for each unit sold, resulting in a seller’s market the likes which have not been seen since the days following World War II—a time when the public was literally starved for cars.

Elevated costs

Since 2022 however, the market has shifted yet again. Rising inflation and the Bank of Canada’s aggressive interest rate hikes put pressure on both dealers and consumers. Today, we’re faced with a situation where prices for used vehicles remain elevated, but new car inventory is improving. This means that dealers are having to adjust their approach to used car operations yet again.

According to Daniel Ross, Senior Manager, Industry Insights & Residual Value Strategy, at Canadian Black Book, with used vehicle inventories improving in the U.S., there has been less interest in shipping cars across the border. From a peak of 374,000 units crossing from Canada to the U.S. in 2021, that demand has consistently declined, easing used vehicle demand here at home and facilitating price declines. As a result, we’ve seen lower retail pricing and an increase in the number of days to turn inventory, as dealers look to maintain buyer interest and shift metal off their lots.

Below pre-pandemic levels

Jeff Schulz, Executive Vice President, Marketing at LGM Financial Services, notes that while the availability of used vehicles has improved, it’s still significantly below pre-pandemic levels. Plus, with the overall economy slowing and interest rates remaining elevated, many consumers are scaling back on big-ticket purchases, including vehicles.

This means dealers will often need to be creative when it comes to moving used inventory. “It’s important for dealers to understand their local market,” says Schulz. “You need to know what kinds of vehicles are in demand and do your best to cater to that customer base.” In B.C.’s lower Mainland, for example, Schulz notes that fuel efficiency is currently a top priority for many consumers, so focusing on fuel-efficient vehicles and those that are likely to appeal to a more environmentally conscious buyer such as hybrids and PHEVs likely make more sense. In other markets, small SUVs and pickups might be in high demand, so it’s important for dealers to understand what is selling and what isn’t and prioritize sourcing their used inventory accordingly.

Higher payments

At AutoTrader, Baris Akyurek, Vice President, Insights and Intelligence, notes that the firm’s data points to a 2.1% year-over-year decline in used vehicle prices, yet at the same time, the cost to finance those vehicles has increased. For consumers, Akyurek notes that in February 2019, it cost $450 per month to finance the average used vehicle. By February 2024, that had increased by 36.5% to $636. Additionally, affordability issues are stretching loan terms—with the average duration increasing from almost 68 to over 72 months between February 2019 and 2024.

Additionally, for dealers, floor plan financing is significantly more expensive today, so, as Daniel Ross at Canadian Black Book notes, finding the right vehicles that can be quickly turned is far more critical now than even a couple of years ago, meaning that dealers need to focus on more efficient remarketing efforts and should not be tempted to hold out for the “right” buyer. “The repercussions of keeping inventory too long or holding out on price for that right buyer highly expose consistent profitability,” he says. “Stick to the process enforced at the dealership and improve upon areas that slow things down.”

F&I considerations

According to Jeff Schulz, dealers can satisfy both consumer demand and improve inventory turn by creating solid F&I packages for their used vehicle customers. Given that pricing is still expensive, as are financing rates, with many consumers looking to stretch the loan terms to improve affordability, anything to address consumer peace of mind when it comes to a used vehicle purchase is paramount. That’s why Schulz says that certified pre-owned programs are proving particularly popular, demonstrating that the vehicle has gone through a rigorous, multi-point inspection program prior to being certified for sale.

Additionally, Schulz notes that loan protection can be a good option since it can provide assurance in the advent of disability or job loss, especially as the economy continues to slow. Extended warranties can also make a significant difference. “Used vehicles tend to have higher rates of mechanical failure, so an extended warranty provides added assurance to the customers,” Schulz explains. “Furthermore,” he says, “they can also serve as a retention tool, bringing the customer back to the dealer for service and eventually their next vehicle.”

 

 

Evans, H. (2024, March 20). Used vehicles: Navigating through a changing market. Autosphere. https://autosphere.ca/dealerships/2024/03/19/used-vehicles-navigating-through-a-changing-market/

Declines in prices for the Canadian used wholesale market is less than the prior week — including for the overall car and truck/SUV segments, according to Canadian Black Book’s latest report covering the week ending on May 25.

The market was down -0.23% this time, compared to the previous week’s -0.38%. The overall car category fell -0.33%, which is slightly less than the prior period’s -0.35%. And truck/SUV segment prices were down -0.14%, a decline that is less steep than the -0.40% of the prior week. No segments experienced an increase in values for the week.

“The Canadian market continued to decrease, with declines that (were) less than the prior week,” said CBB in its update. “Supply is building with stable demand for vehicles at auction on both sides of the border.”

In the United States, CBB said the market continues to report “normalcy,” with overall declines on-pace with pre-pandemic behaviour. “However, the trends aren’t one size fits all, with the trends of auction inventory and conversion rates varying from lane to lane, depending on the seller’s strategy and offered inventory.”

Back in Canada, premium sports cars experienced the least declines with -0.04%, followed by sports cars at -0.13% and near luxury cars with -0.18%. The most notable decrease came from luxury cars (-0.88%), followed by compact cars (-0.58%) and sub-compact cars (-0.55%).

As for trucks/SUVs, CBB said the segments with the most notable depreciations were full-size luxury crossovers/SUVs (-0.29%) and compact crossovers/SUVs (-0.26%). In addition, three categories showed no change in pricing: sub-compact luxury crossovers, minivans, and sub-compact crossovers.

The average listing price for used vehicles, as per the 14-day moving average, was around $33,900.

The full report is available here

 

 

dealer, C. auto, & Phillips, T. (2024, May 28). Used market price declines less intense as supply builds. Canadian Auto Dealer. https://canadianautodealer.ca/2024/05/used-market-price-declines-less-intense-as-supply-builds/

 

 

 

Slipping again, the Canadian used wholesale market saw a decline in prices of -0.38% for the week ending on May 18, compared to the prior week’s -0.28%.

That is according to Canadian Black Book’s Market Insights report, which also revealed the car segment was down -0.35% (compared to last week’s -0.20%), while truck/SUV segment prices declined -0.40% (compared to the prior period’s -0.35%). One segment saw an increase in values for the week and that was full-size luxury crossovers/SUVs — at +0.15%. 

In the United States, an acceleration in the rate of decline was observed for the overall market last week, with only two segments reporting a decrease in value.

“Although there was some reduction in auction inventory, the volumes being sold by the larger sellers, especially in the OEM lanes, are reminiscent of those seen pre-COVID,” said CBB.

In Canada, the sports car category showed the least of declines with -0.08%, followed by premium sports cars at -0.18%. The most significant decrease came from sub-compact cars at -1.19%, followed by compact cars at -0.90% and mid-size cars at -0.26%.

For trucks/SUVs, the segments that experienced the most notable declines were compact vans (-1.26%), full-size pickups (-0.75%), sub-compact crossovers (-0.74%), and full-size crossovers/SUVs (-0.72%). However, as previously mentioned, one segment was up and that was full-size luxury crossovers/SUVs — at +0.15%.

The average listing price for used vehicles, as per the 14-day moving average, was $33,800. The analysis is based on around 220,000 used vehicles listed for sale on Canadian dealer lots, according to CBB.

The full report is available here

 

Lefko, P., dealer, C. auto, Lefko, P., & dealer, C. auto. (2024, May 22). Used vehicle prices down -0.38%; cars down further this week. Canadian Auto Dealer. https://canadianautodealer.ca/2024/05/used-vehicle-prices-down-0-38-cars-down-further-this-week/

The Road Back to Normality

Highlights

  • Canadian light vehicle sales are expected to grow by 9.6% in 2024 to 1.9 million units, as affordability challenges diminish and population growth bolsters demand.
  • Risks to our forecast are roughly balanced, with elevated population growth offsetting the risks related to moderating economic fundamentals.
  • North American automotive production is expected to grow by 2.9% in 2024, providing further support to supply levels.

Light vehicle sales in the first quarter of 2024 totaled over 391k units, representing a 9.1% increase relative to the same period last year. Car volumes were up 17.4% year-on-year (y/y) in the first quarter, while light truck volumes were up a more modest 7.6% y/y. Light trucks continued to account for more than 80% of light vehicle sales, but the segment’s share has fallen modestly relative to last year as the supply mix rebalances amid rising production and enhanced demand for affordable models.

Despite the numerous economic challenges facing Canadian consumers, demand for automobiles has shown surprising resilience over the past year, with sales growth in 2023 roughly matching that seen in the U.S. This occurred even though the Canadian economy expanded at a pace less than half that seen south of the border last year. This can in part be explained by the binding nature of supply constraints over the past few years, as gradual inventory improvements were matched by pent-up demand in both countries. While this remains the driving factor in 2024 for Canada amid a solid build-up of accumulated consumer savings, elevated population growth has also been boosting sales volumes.

For the year, we expect that vehicle sales in Canada will grow by 9.6% – reaching 1.9 million units – although moderation is expected through the year as the economy slows and the post-pandemic bounce-back recedes gradually. We anticipate that sales will return to the pre-pandemic level next year as the economy recovers and lower interest rates facilitate stronger buying activity.

North American & Canadian Production Rebounding

Chart 1: The chart shows that global supply chain pressures, as measured by the New York Fed's Global Supply Chain Pressure Index, declined steadily throughout 2022 and into 2023 after spiking in 2021. The index shows that supply chain pressures were below the historical average for most of 2023, before rising and returning to normal levels in 2024. The chart also shows that manufacturing delivery times in Canada and the U.S. have mirrored this trend and are now back at their pre-pandemic level.The automotive industry returned to a state of normality in 2023 as easing supply chain issues improved procurement times (Chart 1) and facilitated a rebound in production. As a result, North American light vehicle production increased 9.6% last year, putting total production only 3.9% below 2019 levels. This helped to push inventory levels to their highest level in three years to start 2024.

In Canada, 1.54 million light vehicles were produced last year, representing a 25.7% increase relative to 2022. Although this production level is roughly 18.9% (or 357k units) below the nation’s 2019 production level, most of this decline (~95%) is accounted for by discontinued production of the Chevrolet Equinox at General Motor’s Ingersoll plant and the Dodge Caravan at Stellantis’ Windsor plant. However, both facilities have seen partial offsets from the production of other models.

Looking to 2024, North American automotive production is expected to increase by 2.9% as automakers continue to adjust to the post-pandemic market. Canadian production in contrast is expected to decline, but this is related to the temporary shutdown of the Stellantis Brampton plant and the Ford Oakville plant as the two facilities are upgraded for electric and hybrid vehicle production. Over the coming years, the upgrading of assembly facilities is expected to keep aggregate Canadian auto production output subdued.

Canadian Labor Market Moderately Supportive of Demand

Chart 2: The chart shows the Canadian unemployment rate, in addition to the year-on-year growth rates for the Canadian labor force and employment. Year-on-year employment growth remained around 2% for most of 2023, before decelerating into 2024. Labor force growth in contrast accelerated in mid-2023 and consistently outpaced employment growth, which pushed up the unemployment rate by one percentage-point between March 2023 and March 2024.The Canadian labor market is not quite as weak as is suggested by the one percentage-point increase in the unemployment rate over the past year. With the nation’s population growing by 3.2% last year, we have seen labor force growth outpace employment growth consistently since May 2023 (Chart 2), which has exerted upward pressure on the unemployment rate. Canadian job gains in 2023 actually exceeded those seen in 2019 by more than 100k jobs, but the economy would have needed roughly 160k additional new jobs to offset outsized labor force growth and keep the unemployment rate unchanged relative to the start of 2023. At the same time, while part-time jobs contributed more to last year’s gains than usual (25% vs. 3% in 2019), full-time job growth was above that seen in 2019. So, while the Canadian labor market is not remarkably strong, it is not currently in the doldrums either.

This has contributed to the resilience in real income growth and bolstered the financial situation of households. Real household disposable income was roughly 8.8% higher in the fourth quarter of 2023 relative to the fourth quarter of 2019. However, the household savings rate has remained at an elevated level, suggesting that Canadians are opting to retain a higher share of these gains than they did prior to the pandemic. While there are multiple reasons why this might be, one of the primary drivers is related to shelter costs.

Housing Costs Continue to Have a Strong Influence on the Economy

About 35.5% of Canadian households currently hold a mortgage, and roughly half of them have yet to see their rates renew since the Bank of Canada began to raise interest rates back in early-2022. Precautionary saving is likely elevated among this cohort as interest rates are expected to remain above the pre-pandemic level for the foreseeable future. The other half of mortgage holders, which includes variable rate mortgage holders, have already seen their payments increase, which has pushed up the mortgage debt service ratio to its highest level on record (Charts 3a & 3b). In addition to mortgage holders, many households that rent (which encompass roughly a third of households) have also seen their housing costs rise through elevated rent price growth over the past few years. Renters wishing to own one day are also likely boosting their savings as housing prices remain elevated.

Chart 3a: The chart shows the sixty-month change in the conventional Canadian mortgage rate for a 5-year term between 1990-2024. The chart shows that five-year changes in the five-year mortgage rate were predominantly negative over the thirty-year period from 1990-2019, with the only positive occurrences in the early 1990s, 2006-2007, and 2018-2019. The average five-year change during this period was negative 1.28 percentage points. In the post-pandemic period, the five-year change has risen to and remained near its highest level since 1990. Chart 3b: The chart shows the Canadian mortgage debt service ratio (DSR) for 1990-2024. The mortgage DSR fell from 6-7 at the start of the 1990's to just above 5 by the start of the 2000's. The DSR then trended upward to 6 prior to 2008 and trended sideways thereafter until it began to rise again in 2016 and return to its early 1990's high of 6-7 by 2019. The DSR fell sharply in 2020-2021, but subsequently rose sharply in 2022-2023 and plateaued at a new record above 8 in 2024.

Collectively, roughly two-thirds of Canadian households have either seen their housing costs rise or expect them to rise at some point in the future. While the magnitude of the increase will vary between households, on aggregate this remains a headwind to consumption and by extension vehicle sales. This is particularly saliant in the context of the current automotive market, as affordability challenges remain amid elevated vehicle prices and financing costs. So, the question is, why are sales still trending higher?

Canadian Vehicle Sales Continue to Grow Despite Headwinds

Chart 4: The chart shows the year-on-year change in the consumer price index subcategory for private purchases of passenger vehicles for 2020-2024. This shows that auto price growth trended near 2% in 2020 before spiking to a high above 8% by mid-2022. Price growth then fell quickly through the second half of 2022 and the first half of 2023, returning to 2% by mid-2023. In 2024, year-on-year price growth was near 0% in the most recent data for Mach 2024.The first reason is owing to the delayed post-pandemic recovery in the automotive sector. The lack of available inventory in the market over the past three years has created a build-up of pent-up demand, which is one of the reasons why Canadian vehicle sales growth roughly matched that seen in the U.S. last year despite materially different economic trends. As production ramped up and supply levels gradually improved last year, consumers in both countries pushed sales to their highest level since 2019. This is expected to continue to support sales moving forward, with moderating vehicle prices (Chart 4) and lower financing costs providing support to this channel through the second half of the year.

The second factor pushing up Canadian vehicle sales over the past year has been population growth. Commuting to work via a vehicle is the main method of transportation for all segments of the population, including non-immigrants, immigrants, and non-permanent residents. While non-permanent residents, the largest source of population growth in Canada over the past two years, tend to rely on public transportation for commuting to a greater degree, more than half typically use a vehicle (Chart 5). In 2022, supply constraints and low inventory levels negated the impact this would normally have on sales, but through the second half of 2023 and into 2024 we have seen population growth begin to feed through to demand.

Chart 5: The chart shows the shares of commuting methods for driving, public transit, active transportation, and other, for three categories; non-immigrants, immigrants, and non-permanent residents. Driving is the most common method of transportation for all three categories, although non-permanent residents rely more on public transportation (~33%) than non-immigrants and immigrants (~5-13%). Chart 6: The chart shows annual Canadian motor vehicle sales for 2015-2025, with 2024-2025 being forecasts. Pre-pandemic, auto sales trended around 2 million units per year. Pandemic-related supply chain disruptions pushed annual sales down to 1.6-1.7 million units for 2020-2023, although at 1.74 million units, 2023 sales were the highest they have been since 2019. Looking ahead, we expect sales to rise gradually to a range of 1.9-2.0 million units in 2024-2025.

Looking ahead for 2024, we expect that vehicle sales in Canada will grow by 9.6% to 1.9 million units before moderating to 4.3% in 2025, with healthy inventory levels and lower financing costs improving affordability into the new year (Chart 6). Risks to our forecast are roughly balanced, as population growth may have a stronger feedthrough effect than expected, while at the same time moderating economic growth and the potential for persistent affordability challenges could weigh on sales as well.

Bottom Line

With 1.76 million vehicles sold in Canada last year and inventory levels reaching a three-year high to start 2024, the long-awaited recovery in the automotive market is well underway. Inventory levels are expected to continue to grow in 2024, with supply chain disruptions and union negotiations of prior years soundly in the rear-view mirror. The demand picture on the other hand continues to be nuanced, with economic headwinds, particularly related to the housing sector, running up against the countering influence of elevated population growth. We expect that Canadian vehicle sales will grow by 9.6% this year, before converging with the pre-pandemic level of sales in 2025.

 

Foran, A. (2024, May 13). Canadian Automotive Outlook. The Road Back to Normality. https://economics.td.com/ca-auto-outlook-update?utm_source=TD&utm_medium=Email&utm_campaign=ca-auto-outlook-update

 

As scientists warn that the world needs to transition away from fossil fuels to limit climate change, Canadians are still lukewarm on electric vehicles, according to a survey conducted by Nanos Research for CTV News.

Nanos surveyed 1,086 Canadians between April 28 and May 1 to gauge their level of support for a hypothetical ban on the use of gas-powered cars and SUVs as of 2035, their feelings about green energy incentives, their level of confidence that Canada will have enough charging infrastructure in the future and their level of interest in owning an electric vehicle.

The survey found Canadians were almost four times more likely to oppose, rather than support, a total ban on the use of gas-powered vehicles as of 2035.

“Opposition is higher among residents of Atlantic Canada, the Prairies and British Columbia compared to Quebec,” the study reads.

The results come months after federal Environment Minister Steven Guilbeault finalized new regulations mandating the transition to battery-operated cars, trucks and SUVs.

Automakers will have the next 12 years to phase out combustion engine cars, trucks and SUVs, and to gradually increase the proportion of electric models they manufacture.

The move fulfills a promise the Liberals made in 2021to phase out the sale of gas-powered passenger vehicles by 2035, but it is not a total ban on the use of combustion engine vehicles. Gas-powered models sold before 2035 will be allowed to remain on the roads.

Incentives, infrastructure and ownership

When it comes to green energy incentives, 72 per cent of respondents support or somewhat support incentives for Canadians to use alternative energy sources for home and travel. This figure is consistent with findings from 2023, but remains lower than in 2016. Support is higher in Quebec (81 per cent) and Ontario (72 per cent) than in the Prairies (63 per cent).

Level of confidence in Canada having enough charging infrastructure in the future

Question: Are you confident, somewhat confident, somewhat not confident or not confident we will have enough charging infrastructure in the future to support the increasing number of electric cars?

RDD dual frame hybrid telephone and online random survey, April 28 to May 1, 2024, n=1086, accurate 3.0 percentage points plus or minus, 19 times out of 10
Source: Nanos ResearchCreated with Datawrapper

Enthusiastic as they are about clean energy incentives, Canadians are much less optimistic about the likelihood Canada will have enough charging infrastructure in the future to support the increasing number of electric cars.

In fact, two-thirds of survey respondents, or 66 per cent, are not confident or somewhat not confident Canada will have the necessary infrastructure in place. Once again, Quebecers expressed the most optimism in this area than respondents in other parts of the country.

Level of interest in owning an electric car – Tracking

Question: Are you interested, somewhat interested, somewhat not interested or not interested in owning an electric car?

RDD dual frame hybrid telephone and online random survey, April 28 to May 1, 2024, n=1086, accurate 3.0 percentage points plus or minus, 19 times out of 20
Source: Nanos ResearchCreated with Datawrapper

Finally, fewer survey respondents are interested in owning an electric car now than in 2022 and 2021. Just over half are interested (21 per cent) or somewhat interested (33 per cent), representing an 11-percentage-point decline in outright interest from 2022, when 32 per cent interested.

Quebec residents are more likely to be interested or somewhat interested in owning an electric vehicle than respondents in the Prairies or Atlantic Canada. The study did not state why Canadians’ attitudes toward electric vehicles may have changed.

 

 

Methodology

Nanos conducted an RDD dual frame (land- and cell-lines) hybrid telephone and online random survey of 1,086 Canadians, 18 years of age or older, between April 28 to May 1, 2024 as part of an omnibus survey. Participants were randomly recruited by telephone using live agents and administered a survey online. The sample included both land- and cell-lines across Canada. The results were statistically checked and weighted by age and gender using the latest Census information and the sample is geographically stratified to be representative of Canada.
Individuals randomly called using random digit dialing with a maximum of five call backs. The margin of error for this survey is ±3.0 percentage points, 19 times out of 20. Charts may not add up to 100 due to rounding.
With files from The Canadian Press 

 

DeLaire, M. (2024, May 5). Amid climate change warnings, Canadians lukewarm on Electric Vehicles. CTVNews. https://www.ctvnews.ca/autos/amid-climate-change-warnings-canadians-lukewarm-on-electric-vehicles-1.6873815

 

Just like bananas, ‘there’s some green, some yellow, some brown, and some rotten’ used cars, says Dale Pollak

Used vehicles are too often being priced using irrational, flawed and outdated assumptions that are undermining profit, according to Dale Pollak, a U.S.-based auto retail expert and founder of vAuto.

That’s because prices are usually determined based on how long the vehicle has been sitting on the lot. The temptation is to price everything for maximum margin on day one and then discount if it starts to sit, he said. But that’s a mistake.

“For some reason, we believe that the number of times the sun — a star in the sky — has risen in the east and set in the west over our vehicle somehow is an accurate measurement of that vehicle’s opportunity,” Pollak said during a presentation to a dealer audience Nov. 28 in Toronto. “Calendar does not equal profit potential.”

Instead, he encouraged pricing managers to view used cars as bananas: “There’s some green, some yellow, some brown, and some rotten,” said Pollak, also founder of vAuto, a software tool aimed at helping dealers better manage their new-and used-vehicle inventories to optimize profitability.

Brown and rotting bananas need to be discounted and sold quickly, while yellow and green ones can be priced higher and held onto until the right buyer comes along, he said.

“That is what any rational, prudent businessperson would do with an eye towards optimizing the return on that set of inventory,” said Pollak. “It just happens to be exactly the opposite of what we do with cars.”

He compared two sales that look identical on a balance sheet: A $50,000 car, with a $2,500 margin, sold in 60 days versus a $15,000 vehicle that sold in 20 days with the same margin.

“They are the same two grosses but are they the same two outcomes for your used car business?” he said. “Not one of us would ask the question, ‘Wait a minute. How much did we have to invest and how long did we have to hold that investment to make $2,500?’”

Pollak’s team did a deep dive into data from millions of used vehicle transactions and came up with three key factors that had a significant correlation with return on investment: the vehicle’s cost relative to the market; its supply-demand ratio; and its popularity or retail volume.

The idea, using this approach, is to categorize inventory into four tiers: Platinum, gold, silver, and bronze. Platinum can be priced the most aggressively and held onto, while bronze vehicles should be discounted on day one and sold quickly like a rotten banana, he said.

The data, though, showed many dealerships priced their bronze inventory — the ones with the highest cost, longest market day supply and lowest retail volume — as if they were their most prized assets, he said. Conversely, platinum vehicles — lower costs, high demand and market popularity — were often priced as if they were in distress and needed an urgent sale.

“You’re pricing your highest risk investments essentially not to sell and you’re distress pricing your best cars,” said Pollak. “You’re selling your best cars in a third or half the time, and you’re hanging on to your toughest cars twice as long. Nobody can defend that.”

 

 

HUMBER, T. (2023, November 30). Why an expert told Canadian dealers to price used cars like bananas. AUTOMOTIVE NEWS CANADA. https://canada.autonews.com/retail/why-expert-told-canadian-dealers-price-used-cars-bananas

 

This week, Canadian Black Book’s latest Market Insights update reveals that the used wholesale market experienced a decline in prices of -0.34% for the week ending on April 13 — close to the prior week’s -0.36%, though inching further from the 2017-2019 average of -0.08%.

The car segment fell by -0.38% compared to the previous week’s -0.28%, while truck/SUV segment prices were down 0.30% — less than the prior week’s -0.43%. Two out of 22 segments’ values increased for the week: mid-size luxury crossovers/SUVs (+0.18%) and sports cars (+0.03%).

In the car category, the most significant decline was shown in prestige luxury cars (-1.12%), followed by compact cars (-1.19%). Only one segment showed an increase in pricing and that was sports cars (+0.03%), trailed by premium sports cars (-0.07%) and luxury cars (-0.08%).

For trucks/SUVs, sub-compact crossovers (-0.89%) experienced the largest decline followed by full-size pickups (-0.76%), while compact vans and full-size crossovers/SUVs shared the same decrease (-0.67%). Only one segment had an increase and that was mid-size luxury Crossover/SUV (+0.18%).

The average listing price for used vehicles, as per the 14-day moving average, was approximately $34,500. The analysis is based on around 220,000 used vehicles listed for sale on Canadian dealer lots, according to CBB.

Other updates from CBB include that wholesale sales in Canada were flat month-over-month at $82.2 billion in February 2024. The Canadian dollar hovered around $0.725 on Monday morning, down from $0.735 the prior week. And the overall United States market, although still experiencing growth, is seeing a noticeable deceleration in the pace of these gains.

CBB also said a “growing number of segments are beginning to see a reversal into negative trends.”

The full report is available here.

 

dealer, C. auto, & Lefko, P. (2024, April 17). Used vehicle prices down -0.34%, two segment values up. Canadian Auto Dealer. https://canadianautodealer.ca/2024/04/used-vehicle-prices-down-0-34-two-segment-values-up/