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Used vehicles are too often being priced using irrational, flawed and outdated assumptions that are undermining profit, according to Dale Pollak, a U.S.-based auto retail expert and founder of vAuto.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

Four years after a global pandemic and lockdowns drove the automotive industry into a brick wall, with major supply chain kinks and withered car lot inventories, things are back to normal, in terms of inventory, according to AutoTrader.

New vehicle inventories in Canada on AutoTrader’s marketplace hit a record high of 168,000 vehicles in February – a 78 per cent year-over- year increase.

Used vehicle inventory is also up, with 202,521 used vehicles on the market in February.

“Dealership lots are currently packed with used vehicle inventory, as the influx of new vehicle availability is contributing to higher volumes of pre-owned vehicles,” AutoTrader says in its latest marketplace report.

“With significant signs of inventory recovery – in some cases, the highest levels recorded since the pandemic – and record price drops, the data suggests now is the closest to a buyer’s market we’ve seen in years.”

In the early days of the pandemic, there were supply chain interruptions and auto makers cut back on production, thinking vehicle sales would plummet. But demand for new cars actually remained strong. As new car inventories shrank, prices rose, and car dealers scrambled to fill demand with used cars.

Now there’s a bit of a glut of used cars for sale, so prices are coming down.

“In January 2024, AutoTrader’s pricing data revealed record-breaking decreases across used inventory pricing, with 35 per cent of used vehicles seeing a drop in pricing – the first in marketplace history,” AutoTrader says.

According to the most recent data from Statistics Canada, there were 128,193 cars and trucks sold in Canada in December 2023, which was higher than the pre-pandemic number of 116,466 in December 2019.

As of February, the average price for a new vehicle in Canada was $66,979 and a used vehicle $38,451.

In B.C., the average used car price in B.C. was $43,946 in June 2023, said Baris Akyurek, vice-president of insights and intelligence for AutoTrader.

In February, the average price for used vehicles in B.C. came down to $41,811, he said. He added the higher average price for used vehicles in B.C., compared with the rest of Canada, may be attributed to the fact that, in B.C., there tend to be more EV sales, and EVs tend to be more costly than conventional vehicles.

One recent trend in new vehicle inventories is the increase in electric vehicles. Whereas there were only 2,409 EVs listed on the AutoTrader site Canada-wide in 2023, there were 13,573 listed last week. In B.C., there were only 481 new EVs listed last year. Today, there are 4,114.

Akyurek attributes this increase to the fact there are simply more EV models available.

“In 2023, there were around 60 EV models that were being manufactured, and the expectation is by the end of 2024 there will be 145 different make and models,” he said.

However, AutoTrader surveys suggest that some Canadians may no longer be as keen to buy an EV as they were a couple of years ago.

In March 2022, an AutoTrader survey on buyer intentions found 68 per cent of respondents said they would consider an EV for their next car. In March 2023, that fell to 58 per cent.

Akyurek notes that in March 2022, gasoline prices had skyrocketed, as a result of Russia’s invasion of Ukraine and subsequent spiking oil prices. Whenever gas prices spike, interest in EVs go up.

“There is a direct correlation to between what happens to gas prices and EV interests,” Akyurek said.

“EVs are still selling, but are they selling as fast as the supply? No.”

Bennett, N. (2024, March 13). New vehicle inventories in Canada at record high: Autotrader. Business in Vancouver. https://www.biv.com/news/economy-law-politics/new-vehicle-inventories-in-canada-at-record-high-autotrader-8441291

Due to supply constraints and high demand, prices for vehicles skyrocketed during the pandemic. Now, they’re starting to come down

Unsold 2024 Mustang Mach-E electric vehicles sit at a Ford dealership, Jan. 21, 2024, in Broomfield, Colo. As vehicle inventory and manufacturing catches up to consumer to demand, vehicle prices are beginning to drop. PHOTO BY DAVID ZALUBOWSKI /THE ASSOCIATED PRESS

The COVID-19 pandemic hit many industries with supply issues, including the car industry. The pandemic, combined with an increased demand for personal vehicles due to concerns with public transit and an increased desire to travel locally, triggered a large spike in prices for new and used cars across Canada. While car prices are still significantly higher now than pre-pandemic, they are expected to continue dropping.

In working with friends and colleagues at the Used Car Dealers Association, DesRosiers Automotive Consultants reached out to the Canadian used vehicle dealer community and discovered that there are major dynamics at play as the market shifts.

More than 400 UCDA members responded to DAC’s survey, both independent dealers and the used vehicle arm of franchised new vehicle dealers. They offered their view on the used vehicle market in 2023, along with their expectations for the current year.

“With a resurgent new vehicle market, the outlook for the used vehicle sector will be fascinating to watch,” said Andrew King, Managing Partner at DAC, in a statement. “While some consumers are turning their attention back to the new vehicle market, there will be a shortage of recent model year used vehicles for the next few years as off-lease numbers plummet.”

King also said that increases in new vehicle prices, ZEV mandates, and financing shifts all point to the used vehicle market as being “highly dynamic in 2024 and beyond.”

For current year sales expectations, franchised new vehicle dealers and independent used vehicle dealers seem optimistic. On average, they expect to see growth from 203 to 224 units. Among franchised new dealers, sales are expected to rise from an average of 311 units to 341. And sales among independent used dealers are anticipated to grow from 160 to 177 units.

However, when DAC asked dealers about supply and the sourcing of vehicles over the past six months, which they described as “a major point of concern in recent years,” they said respondents were split. Forty-three-point-three per cent of independent used vehicle dealers see the situation as worsening. And 37.3% of franchised new vehicle dealers see it improving.

dealer, C. auto, Lefko, P., & MacDonald, S. (2024, March 1). Key dynamics at play as used vehicle market shifts. Canadian Auto Dealer. https://canadianautodealer.ca/2024/03/key-dynamics-at-play-as-used-vehicle-market-shifts/

Canada’s used wholesale market saw prices decline -0.42% for the week ending on Feb. 3 which, like last week, is not overly far (in comparison to some of 2023’s price declines) from the prior week’s -0.63%. And the 2017-2019 average of the same week was -0.28%, according to Canadian Black Book.

“The Canadian market continued to decrease, with declines closer to the historical average than the last few weeks,” said CBB in its Market Insights update. “Supply is building with decreasing demand for vehicles at auction on both sides of the border.”

The car segment fell by -0.52% compared to the prior week’s -0.76%. And truck/SUV segment prices were down -0.32% compared to the previous period’s -0.46%. Two out of 22 segments’ values were up for the week: sub-compact luxury crossovers (+0.21%) and compact vans (+0.10%).

In the United States, the overall car and truck segments declined -0.33% last week — same as the prior week’s decrease. The volume-weighted car segments fell -0.22%, compared to the previous -0.26% decline. And trucks were down -0.38%; versus the prior week’s -0.36%.

In Canada, the segments in the car category that experienced the least decreases were premium sports cars (-0.09%) and luxury cars (-0.12%). The most significant decline came from sub-compact cars (-1.25%) and compact cars (-1.07%).

For trucks/SUVs, full-size crossovers/SUVs (-0.50%), compact crossovers/SUVs (-0.47%) and full-size pickups (-0.46%) managed the largest declines. However, two segments had increases: sub-compact luxury crossovers (+0.21%) and compact vans (+0.10%).

The average listing price for used vehicles, as the 14-day moving average, was approximately $37,000. 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.

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Used vehicle values have trended downward on both sides of the border in recent months. A recent analysis expects pricing to remain high.

Canada Black Book’s Used Vehicle Retention Index reported values in November at 150.2, meaning used vehicles aged two to six years were 50.2 per cent higher than its benchmark. The index peaked at 165 in March 2022 and hasn’t been this low since it was 152.6 in November 2021. The index sat at 155.2 in October.

In the U.S., values are higher. J.D. Power reported its Used Vehicle Value Index at 197.2 in November, down from a peak of 223.8 in December 2021.

“With our expectation that the OEMs will be disciplined in matching future production levels with demand, we anticipate that the economic difference between new and used vehicle values will remain at levels that will drive sound demand for used vehicles and, in turn, spur sustained elevated pricing,” noted rating agency DBRS Morningstar.

The agency also anticipates higher levels of new vehicle supply and pent-up demand to be sustained for both new and used vehicles for the year. It believes affordability issues around new vehicles will temper growth in this area, which will be a corresponding tailwind for used vehicles.

Meanwhile, leasing volumes are expected to improve as new vehicle inventory builds.

“Overall, we anticipate recovering levels of leases will be driven by improved OEM production and higher inventory, as well as due to OEMs having improving visibility into used vehicle values,” DBRS observed. “Additionally, with growing inventory levels, we anticipate OEMs increasing the use of incentives to drive new vehicle sales, including lease programs.”

Malik, A. (2024, January 25). What will be the story for used vehicles in 2024?. Auto Service World. https://www.autoserviceworld.com/what-will-be-the-story-for-used-vehicles-in-2024/

There’s been a bit of an up and down with Canadian used wholesale market prices, with declines ranging from steep to less steep. Last week was notable at -1.06%, but this week the decline in prices is -0.51% for the period ending on Jan. 13, 2024.

The 2017-2019 average of the same week was -0.36%. The car segment fell by -0.59% this past week (compared to the prior week’s -0.67%). And truck/SUV segment prices were down -0.42% (compared to the previously steep -1.45%). Not a single segments’ values increased for the week.

“The Canadian market continued to decrease, with declines around 50% more than the historical average,” said Canadian Black Book in its latest Market Insights report. “Supply is building with decreasing demand for vehicles at auction on both sides of the border.”

In the United States, the overall car and truck segments decreased -0.63% last week and -0.68% the prior week. The volume-weighted car segments were down -0.39% (versus the previous -0.49%), while trucks decreased by -0.73% (compared to the prior week’s -0.77%).

In the Canadian market, and specifically the car segment, luxury cars showed a minimal decline (-0.02%) in pricing, along with premium sports cars (-0.33%). The most significant decrease came from compact cars (-1.11%), followed closely by prestige luxury cars (-1.01%).

For trucks/SUVs, the largest declines were sub-compact crossovers (-1.74%), sub-compact luxury crossovers (-1.23%) and minivans (-1.03%). As for the smallest decreases, the segments worth noting include full-size vans (-0.09%) and compact vans (-0.12%).

The average listing price for used vehicles, as per the 14-day moving average, was approximately $37,600. The analysis is based on approximately 210,000 vehicles listed for sale on Canadian dealer lots, according to CBB.

The full report is available here.

dealer, C. auto, dealer, C. auto, & Lefko, P. (2024, January 17). Used car market price declines still more than historical average. Canadian Auto Dealer. https://canadianautodealer.ca/2024/01/used-car-market-price-declines-still-more-than-historical-average/

Dealers can expect similar demand for new and used vehicles in the months ahead.

As we near the end of the year, it is clear that used vehicles remain the go-to option for many consumers. And yet, new vehicle inventory is expected to continue to move forward in the new year as demand remains, giving dealers a ray of hope for 2024.

In an interview with Canadian auto dealer, Daniel Ross, Canadian Black Books’ Senior Manager of Industry Insights & Residual Value Strategy, said he expects new vehicle inventory and new sales volume to be higher in 2024. On the flip side, he does not see used vehicle supply as sufficient enough to support the demand coming its way.

“We’re probably seeing more of a stagnant or maybe a leveling off of MSRP increases on the new car side. So that might be a better story for new cars as they come back to the market. But used cars, we’ve already had three-plus years of less-than-perfect new car sales and that’s going to infiltrate on the returning vehicles to today’s market — or tomorrow’s market if you will,” said Ross.

He expects this issue will hamper supplies even more, while the used vehicle supply is anticipated to be a smaller portion of the overall volume in the market than it is today. This, in turn, should result in better retention on value and, possibly, still high residual values — particularly in the short term.

“That’s kind of going to illustrate what happens next year in terms of new cars moving forward in sales volume, but still incremental versus used cars being even more hampered on inventory, keeping those prices relatively high,” said Ross.

He suggested that dealers keep an eye on wholesale prices and how used vehicle volume will play out next year. Used vehicle supply is anticipated to worsen before it improves.

Ross also noted that new vehicle sales, lease trade-ins or lease maturities are not coming back to the market nearly in the fashion they used to.

“If a dealer is looking for good used vehicles to fill their lot, it’s going to be tough to do that next year as well. They can rely a little bit more on the new car side of things, but lots of consumers are looking for used vehicles. Two-to-six-year-old vehicles are predominantly what they’re looking for,” he said, adding that the result may create a tougher opportunity to buy, especially in open auctions.

A slow decline is also expected in 2024, though nothing extreme; it will be segment-specific due to changing consumer trends in favour of cars and smaller SUVs. “That’s kind of what I would incentivize dealers to sort of look at more carefully, in terms of their inventory levels and where they want to focus.”

As for electric vehicles, the demand appears to be weakening — slightly. But as EVs remain in the early stages of adoption, Ross said it will be interesting to see how the market fares in 2024, knowing that some key players will be introducing vehicles in certain segments of the Canadian market that are expected to sell well. “So that’ll be good,” said Ross.

Lefko, P., dealer, C. auto, Ockedahl, C., dealer, C. auto, & Lefko, P. (2023, December 21). Sales, trends and predictions for 2024. Canadian Auto Dealer. https://canadianautodealer.ca/2023/12/sales-trends-and-predictions-for-2024/