Drivers, start your loan applications: The average price for a vehicle in Canada is rising fast.

According to AutoTrader.ca, an online marketplace for new and used vehicles, new vehicle prices rose 21 per cent in June on an annual basis to $66,288 and used prices rose 4 per cent to $39,645. However, used prices have risen about 53 per cent since June, 2020, and as prices rise, it’s becoming harder for drivers to find a car for less than $20,000.

Baris Akyurek, vice-president of insights and intelligence at AutoTrader, said that in the first quarter of 2023, the share of used vehicles that sold for less than $20,000 was 30.6 per cent. That compares with 60.5 per cent just five years ago.

About 1.3 million fewer new cars entered the market between 2020 and 2022, which affected the number of used vehicles for sale – and their prices. Compared with May 2020, there’s been a 57-per-cent decline in the volume of used vehicles below $20,000, according to Akyurek. And those vehicles are often older models with high mileage.

The top five used vehicles that sold for less than $20,000 in the beginning of 2023 on AutoTrader were the Hyundai Elantra (1999-2023, with average mileage of 122,204 kilometres), the Ford Escape (2001-2022, average mileage 154,740 kilometres), the Mazda 3 (2004-2021, average mileage of 135,873 kilometres), the Dodge Grand Caravan (1999-2022, with average mileage of 145,776 kilometres) and the Chevrolet Cruze (2011-2019, with average mileage of 108,090 kilometres).

“Anyone hoping that the used-vehicle market will become more predictable or even right-size itself in 2023 will likely be disappointed,” Akyurek said. “Unique market conditions and a slew of new challenges are reshaping the used market in unexpected ways.”

High demand, a steep decline in supply, fewer lease returns and the impact of pandemic-related manufacturing challenges are still being felt in the market. As a result, “the used-vehicle market is expected to remain competitive with the tandem of reduced volume and high demand keeping prices elevated,” Akyurek said.

While prices may be climbing, cars are also lasting longer these days and are packed with technological advancements, including many safety features that rely on cameras and sensors. The average mileage a vehicle runs for is about 322,000 kilometres, which translates into 10 to 12 years, according to BrokerLink Communications.

“The biggest value now is to keep up your current vehicle,” said Daniel Ross, a senior automotive analyst at Canadian Black Book, a Markham, Ont.-based company that tracks and forecasts used car prices. “The one they have is worth a lot, so why not drive it?”

Other reasons for used car inflation include economic uncertainty, rising interest rates and larger loan payments. “Prepandemic, the average buyer wouldn’t need a loan to get a used vehicle. Arguably, now, the average Canadian likely would need financing to purchase a used vehicle because they’re unlikely to find those price points from pre-pandemic where you had cash on hand to buy it,” said Rebekah Young, head of inclusion and resilience economics at Bank of Nova Scotia.

According to a recent Equifax report, loans for used vehicles are 31-per-cent higher than three years ago. The average bank loan for a used vehicle is $34,000; interest rates on those loans have also increased to 8 to 10 per cent from 4 to 7 per cent in the past three years.

Many new-car lease terms are longer too, affecting used car supply and prices. “Traditional, short, 48-month leases are being replaced with longer 84-month contracts,” said Ross of Canadian Black Book. “Keeping a car for 84 months, as opposed to 72 or 60, obviously will also influence the supply down the road if everyone is holding onto their cars.”

Price relief could arrive if and when automakers reignite incentives on new vehicles, Akyurek said. “But for now, discounting remains limited. And with the fragility of today’s pesky supply chains, any discounting out there may not make a significant impact in the near term.”

If incentives came back and lowered the prices of new cars, that would also decrease used car values. But with sales going gangbusters as it is, “manufacturers aren’t likely to incentivize vehicles when they don’t have to. It costs them more money,” Ross said.

So what might help?

“We need more vehicles to be produced. … And there’s an obligation on manufacturers to make affordable cars for the market, and they’re not doing that any more,” Ross said.

Not that the blame falls entirely on manufacturers. Buyers are at fault too, he said, because they’re demanding larger vehicles with more capacity and better performance, which are more expensive to produce.

“I’m afraid the normal that we knew might be long gone because new car prices are so high now. Those new car prices might be the new used car prices.”

Scotiabank’s Rebekah Young was of a similar mind, saying supply still hasn’t caught up to demand, and probably won’t for some time. “We’re not likely to see massive corrections in pricing in either market [used or new] any time soon.”

Gentile, P. (2023, July 26). As car prices hit record highs, the number of cars less than $20,000 dwindles. The Globe and Mail. https://www.theglobeandmail.com/drive/mobility/article-as-car-prices-hit-record-highs-the-number-of-cars-less-than-20000/

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Aftermarket Pushes Forward while Dealers Diverge

The first quarter saw a dramatic split in performance between the retail sales of new and used vehicle dealers. New vehicle dealers saw a 9.3% increase as growing inventory levels help boost sales performance. Used vehicle dealers on the other hand saw a 2.5% decline in the first quarter as consumer focus shifted to the available vehicles in the new side of the market, and prices stabilized after the record gains of the last 2 years.

February marked a full year since the invasion of Ukraine sparked sharp increases in gasoline prices in 2022. In comparison, retail sales at gasoline stations for the first quarter of 2023 remained fairly flat overall as the price jumps of a year ago have largely subsided. The automotive aftermarket continued to be a pillar of strength in the industry with automotive parts, accessories, and tire stores seeing a 10.2% increase in retail sales compared to the already elevated levels in the first quarter of 2022. “Retail sales in the automotive market saw fascinating market dynamics in the first quarter of 2023” commented Andrew King, Managing Partner at DAC. He continued “Gasoline has levelled off, the aftermarket continues to outperform, while market forces push new and used dealers in different directions.”

Azarov, D. (2023, June 28). DesRosiers automotive reports.

KEY POINTS

• Wholesale used vehicle prices reached their lowest level of the year in May, as sales fell amid high interest rates and inflated retail prices.
• Cox Automotive reported Wednesday a 2.7% decline from April to May in its Manheim Used Vehicle Value Index, which tracks vehicles sold at its U.S. wholesale dealership auctions.
• Used retail sales are estimated to have been down 11% year over year in May, Cox reports.

A sign reads ‘We Buy Used Cars!!’ at an auto dealership on February 15, 2023 in Glendale, California.
Mario Tama | Getty Images

DETROIT – Wholesale used vehicle prices reached their lowest level of the year in May, as sales fell amid high interest rates and inflated retail prices.

Cox Automotive reported Wednesday a 2.7% decline from April to May in its Manheim Used Vehicle Value Index to 224.5. It marks the second consecutive monthly decline and the index’s lowest level since 219.3 in December.

The index, which tracks vehicles sold at its U.S. wholesale dealership auctions, remains elevated from historical levels but is expected to continue to decline this year amid improving new vehicle inventory levels and high interest rates that appear to be scaring off consumers.

“Taking a longer view, May’s year-over-year decline accelerated from April and March; however, the rate of decline might slow over the next several months as we encounter the lower prices seen at auction from May through November last year,” said Chris Frey, Cox senior manager of economic and industry insights, in a release.

Used retail sales are estimated to have been down 11% year over year in May, Cox reports. The notable decline comes as many Americans, especially those with lower credit ratings, are being priced out of the market and repairing their vehicles instead of replacing them.

The declines in sales and wholesale prices signal the used vehicle market is weakening, according to Cox. That’s not good for U.S. auto dealers but a win for the Federal Reserve’s battle to taper inflation by ratcheting up interest rates.

Used vehicle prices have increasingly become a barometer for inflation since early last year when the Biden administration blamed the market for rising inflation rates.

Used vehicle prices have been elevated since the early days of the coronavirus pandemic, as the global health crisis combined with supply chain issues caused production of new vehicles to sporadically idle. That led to a low supply of new vehicles and record-high prices amid resilient demand. The costs and scarcity of inventory led consumers to the used vehicle market, boosting those prices as well.

Continued declines could help bring used vehicle pricing down for consumers, since retail prices traditionally follow changes in wholesale prices. However, that has not been the case thus far, as the average retail listing price for a used vehicle moved 0.8% higher over the last four weeks, Cox reports.

Cox reports the average listed price of a used vehicle was $26,969 in April, the most recent data available.

Wayland, M. (2023, June 7). Used car prices are falling as sales soften amid high interest rates. CNBC. https://www.cnbc.com/2023/06/07/wholesale-used-vehicle-prices-fall-sales-weaken.html

The Canadian used vehicle market saw another decline in prices, this time at -0.08%, according to Canadian Black Book’s latest Market Insights report. It is worth noting that several segments experienced a less than $60 change in average value during this period, as the market continues to stabilize.

The report, which covered the week ending on May 6, revealed a shift in overall car segment prices, which fell 0.06% this week versus +0.02% the prior week. For the overall truck and SUV segment, prices declined -0.11% — down from the -0.09% the week before.

“The Canadian market continued to decrease, and the overall decrease was slightly less than the historical average,” said CBB in its report. “Supply remains low with high demand for more recent and clean condition vehicles on both sides of the border. Upstream channels continue to tap supply before it can be available to wholesale markets.”

Six out of nine car segments experienced a price increase. Sub-compact cars saw the largest increase (+0.38%), followed by compact cars (+0.33%) and sports cars (+0.26%). On the down side, prestige luxury cars experienced the largest decrease at -1.01%.

For trucks/SUVs, the largest declines came from compact vans (-0.48%), sub-compact crossovers (-0.25%) and small pickups (-0.20%). Only one segment experienced an increase and that was full-size pickups at +0.11%.

The average listing price for used vehicles, when considering the 14-day moving average, was approximately $35,000.

In other news and for the fifth consecutive month Canada’s unemployment rate was 5% in April 2023, which is close to the record-low of 4.9% observed in June and July 2022. The April rate beat market estimates of 5.1%.

dealer, C. auto, Lefko, P., Malloy, G., dealer, C. auto, Ockedahl, C., & Lefko, P. (2023, May 12). CBB report shows used car prices are down this week. Canadian Auto Dealer. https://canadianautodealer.ca/2023/05/cbb-report-shows-used-car-prices-are-down-this-week/

Wholesale Prices, Week Ending April 22nd

The Canadian used wholesale market saw a decline in prices for the week at -0.09%. The Car segment pulled ahead of Truck/SUV’s with Car prices increasing by (+0.3%) while Truck/SUVs’ segment prices declined (-0.2%). 8 out of 22 segments’ values have increased for the week. Compact Vans lead with +1.73% and Sub-Compact Cars follow behind at +0.27%. The segments with the largest declines were Compact Luxury Crossovers/SUV (-0.48%) and Full-Size Van (-0.37%).

Car Segments

• Overall car segments increased on average last week by +0.03%.
• There were six segments with a price increase. The Sub-Compact Car segment led the way at (+0.27%), with Sporty Car (+0.22%) and Mid-Size Car (+0.18%) following close behind.
• Three segments saw a decrease in prices. The largest decline being Full-Size Car at (-0.57%) followed by Prestige Luxury Cars (-0.07%).

Truck Segments

• Overall truck segments decreased on average last week by -0.20%.
• Segments with the largest declines were Compact Luxury Crossover/SUV (-0.48%), Full-Size Van (-0.37%), Sub-Compact Crossover (-0.34%) and Sub-Compact Luxury Crossover (-0.30%).
• Two segments had increases. Compact Van (+1.73%) and Small Pickup (+0.01%).

Used Retail Prices & Listing Volumes

The average listing price for used vehicles was consistent week-over-week, as the 14-day moving average was at roughly $36,000. Analysis is based on approximately 170,000 vehicles listed for sale on Canadian dealer lots.

Wholesale

The Canadian market continued to decrease, and the overall decrease was slightly less than the historical average. Supply remains low with high demand for more recent and clean condition vehicles on both sides of the border. Upstream channels continue to tap supply before it can be available to wholesale markets. Many segments saw a change in average value of less than $50 this week as the market continues to stabilize.

Conversion rates were quite varied. Some observed sell rates were as high as 78% but most were in the 40-50% range. Last week we saw less sellers dropping floors, which has been contributing to lanes with lower sell rates.

Canadian Black Book’s Market Insights

Economics & Government

• The annual inflation rate in Canada fell to 4.3% in March of 2023, the lowest since August 2021, in line with market expectations and dropping from 5.2% in the previous month.
• Housing starts in Canada slipped by 11% over a month earlier to 213,865 units in March of 2023, undershooting market expectations of 227,800 units, according to the Canada Mortgage and Housing Corporation.
• Retail sales in Canada are expected to have fallen by 1.4% month-over-month in March of 2023, according to preliminary estimates. Considering February, retail sales dropped by 0.2% from a month earlier, revised lower from preliminary estimates of a 0.6% decrease and compared to the upwardly revised 1.6% jump in January.
• The Canadian dollar is around $0.739 this Monday morning showing a slight increase from $0.746 a week prior.

U.S. Market

In the U.S., overall, Car and Truck segments increased +0.27% last week; the prior week increased by +0.31%.

Volume-weighted Car segments increased +0.37%, compared to the prior week’s increase of +0.41%:

• All nine Car segments increased last week.
• Sporty Car increased again last week, up +0.75%, marking the fourteenth consecutive week for an average weekly gain of +0.63%.
• Compact Car increased +0.52%, marking the eleventh consecutive week of increases. The segment has averaged a weekly increase of +0.55% over the past eleven weeks.
• Premium Sporty Car continued into positive territory for the second week in a row, with a gain of +0.03%.

Volume-weighted Truck segments increased by +0.22%; the previous week had an increase of +0.27%:

• Ten of the thirteen Truck segments reported increases last week.
• Compact Luxury Crossovers ended the segment’s eight weeks of consecutive increases with a small -0.02% decline.
• Minivans once again had the largest week-over-week gain at +0.62%, but this was the smallest single week increase for the segment in the last five weeks.

Industry News

• Tesla is preparing to export the new version of its Model Y to North America from its factory in China for the first time, allowing for its most cost-efficient factory and largest market to be in closer contact; and now Tesla has advertised its Canadian offering of a new trim for the Model Y, a rear-wheel-drive version that would undercut the brands lowest priced SUV currently on sale by $10,000.
• With the largest auto investment in Canada also being supported by the Canadian Federal Government, $13 Billion in subsidies is scheduled to be paid to Volkswagen through a required level of output from the plant; this secures the possibility of $200 Billion of output should the automaker meet all their requirements. A fundamentally different deal than past contracts.
• Jaguar Land Rover will be rebranding itself, “JLR” as it creates a strategy around its nameplates of Range Rover, Discovery, Defender and Jaguar to become a “House of Brands” that will “amplify the uniqueness of our characterful British marques”, says Chief Creative Officer, Gerry McGovern.
• Toyota Motor Corp.’s newly appointed CEO, Koji Sato stated the organizations vision to “significantly enhance” productivity and profitability by the start of 2030, which will focus on the line of electric vehicles to help achieve lower price points and help drive production volume.
• Hyundai Canada pleaded guilty to 6 counts of criminal charges violating the Motor Vehicle Safety Act as it neglected to notify its owners of safety defects within the required 60-day time frame; the company will pay a fine of $360,000.
• Replacing the Encore subcompact SUV will be the 2024 Buick Envista, the brands final internal combustion nameplate before it shifts to an all-electric lineup later this year; the Envista will be available for pre-orders this summer.
• Polestar released the newest member of its all-electric lineup, the 4 last Tuesday at the Shanghai Auto Show, and it will be the first mass production vehicle without a rear windscreen which has been eliminated in favor of a rear-view camera and high-definition screen that delivers to the driver a real-time feed which the manufacturer says improves safety especially at night.

Market insights – 4/25/2023. Canadian Black Book. (2023, April 25). Retrieved May 4, 2023, from https://www.canadianblackbook.com/market-insights/market-insights-4-25-2023/

Well, it was nice while it lasted.

For nearly a year, the average used vehicle in the United States had been edging toward affordable again for millions of people. The relief felt belated and relatively slight, but it was welcome nonetheless.

From an eye-watering peak of US$31,400 in April of last year, the average price had dropped 14 per cent to $27,125 early this month.

Now, with the supply of used vehicles failing to keep up with robust demand, prices are creeping up again, with signs pointing to further increases ahead. So many buyers have been priced out of the new-car market that fewer trade-ins are landing on dealer lots. Deepening the shortage, fewer used vehicles are coming off leases or being off-loaded by rental car companies.

Average list prices for used cars have edged up by about US$700 in the past month, and Alex Yurchenko, chief data officer for Black Book, which tracks prices, expects them to keep rising at least into summer.

“If you have to buy a used vehicle,” he suggested, “right now would be a good time.”

Pete Catalano, a dealer in Independence, Missouri, near Kansas City, has been struggling to get his hands on enough affordably priced cars. Typically, Catalano and his daughter, who co-own Stadium Auto, would have about 50 vehicles on their used-car lot near Arrowhead Stadium. They now have only about half as many. Some of their rival dealers, Catalano said, enjoy a competitive advantage because they can afford to offer financing to buyers with poor credit.

Squeezed by higher prices for gasoline, groceries and utilities, many of Catalano’s customers can’t afford either new or late-model used vehicles. Some would-be buyers he knows are using tax refunds just to make ends meet instead of buying a needed car.

“A used inexpensive car is now becoming more and more of a luxury,” Catalano said. “What the market wants right now is not available, and that’s $3,000, $4,000 and $5,000 cars.”

Behind the vehicle shortage and inflated prices is simple supply and demand. Much of the problem stems from the surging prices of new cars. In February, according to Edmunds, the average new vehicle in the United States sold for nearly US$48,000 — beyond the reach of many consumers.

Though the supply of new vehicles has inched up, they remain relatively scarce and expensive. Automakers still lack sufficient computer chips to produce enough vehicles to meet demand, a lingering consequence of pandemic-related supply shortages. Sales of new vehicles last year were about 3 million below normal levels. Fewer new-car sales mean fewer trade-ins, which mean fewer used vehicles for sale.

With used prices rising again, analysts say buyers who can afford to do so should buy soon. Auto loan rates may continue rising this year as the Federal Reserve keeps raising interest rates.

On used lots these days, bargains are hard to find. Even after accounting for the price drops of the past year, the average used vehicle remains about 35 per cent above where it was before the pandemic erupted three years ago. At that time, the average price was US$20,425.

Once the government sent stimulus checks to most American households, demand for autos rose as many people spent their money. As they did, the supply of used vehicles fell and prices surged. By early last year, the average used-vehicle price was more than 50 per cent above its pre-pandemic point.

Worsening the shortfall was a scarcity of affordable new vehicles. Automakers were using their tight supply of computer chips to build pricier and more profitable SUVs and pickups. They built fewer affordable new models — a trend that sent more buyers to used-car lots. The result was increased demand and higher prices for used vehicles.

All of which left people like Carol Rice struggling to find a decent affordable used vehicle. Rice, 65, endured a long period of frustration while shopping for a used small pickup for her farm near Carbondale, Kansas. For six months, she found little.

“I’m retired, and I can’t afford to buy a new vehicle,” she said. “There weren’t that many used vehicles, and if there were used vehicles, they were quite expensive.”

Last month, she finally found a 2003 Ford Ranger on Catalano’s website that she liked and could afford. She bought it for US$7,700. Though it’s 20 years old and has 140,000 miles on it, the Ranger is in solid condition and has the all-wheel-drive that Rice wanted.

“It was a good-looking vehicle, and the price was right,” she said.

In the immediate future, few analysts expect price declines for used vehicles. Catalano doesn’t foresee any sustained price drops for perhaps the next year or two.

Others say it’s hard to predict. Amy Gieffers, a senior vice president at Vroom, an online auto buying site, notes that some market forces could continue to keep supply down and prices up: Fewer trade-ins, less leasing, lower fleet sales by rental car companies.

On the other hand, she says, more expensive vehicles and higher loan rates could depress buyer demand. Eventually, dealers might be forced to cut prices.

“It’s really complex right now,” she said, “because you have some competing forces.”

Both Yurchenko of Black Book and Charlie Chesbrough, a senior economist at Cox Automotive, say they expect used-vehicle prices to rise through summer before easing slightly as part of a normal late-year depreciation cycle.

At the start of this year, Chesbrough said, he thought higher loan rates would chase away buyers from both the new and used markets. Instead, robust demand from affluent buyers for pricey late-model used vehicles has strengthened sales in the United States.

Many of these buyers are paying cash to avoid higher interest rates. Edmunds.com says the average loan rate on a used vehicle is now 11.3 per cent, up from 8.1 per cent when the Fed started raising rates a year ago.

Because demand is intense and vehicle supplies short, Chesbrough doesn’t foresee sales dropping even if the economy were to slide into a recession. Though many buyers with lower credit scores have left the market, sales remain solid.

With used-car inventories likely to remain crimped for the foreseeable future, Chesbrough doesn’t expect prices to ever fall back to near their pre-pandemic levels

“We just haven’t been creating enough personal transportation in the last couple of years,” Chesbrough said.

Press, T. A., & Krisher, T. (2023, March 30). Used car prices are surging. here’s Why you should buy now. CTVNews. Retrieved April 26, 2023, from https://www.ctvnews.ca/business/used-car-prices-are-surging-here-s-why-you-should-buy-now-1.6335827