Over the period 2021-23 inflationary pressures were rampant throughout the economy and nowhere more than in the used vehicle market. Now with new vehicle supply shortages resolved, and the Bank of Canada starting a rate cutting cycle the picture has changed dramatically. To be sure, pockets of inflation persist – passenger vehicle insurance premiums remain a key source of price growth, rising 8.1% year-over-year in June 2024. Passenger vehicle parts and maintenance also saw a 3.5% increase as a category with maintenance and repair services themselves seeing a 4.2% increase and parts CPI up 2.9%.

However, used vehicle purchase prices have reversed course and started to decrease, dropping 4.5% compared to June of last year. This is in contrast to new vehicle CPI which remains positive at 1.8% – supported by the twin moves toward SUVs and ZEVs. Gasoline, meanwhile, acting as something of a stabilizing force, came in flat for June. Andrew King, Managing Parter at DAC commented that “It is clear that the automotive market is seeing countervailing forces at play.” He continued, “The new and used markets are heading in different directions as industry dynamics reshuffle the landscape and the market works toward a new equilibrium.”

Azarov, D., & DesRosiers Automotive Consultants Inc., D. (2024, August 7). Auto Industry Prices – Key Areas Diverge.

The most notable difference in the Canadian used vehicle wholesale market, where prices are concerned, came not from the overall market or trucks/SUVs but from the car category.

While prices for the overall market declined -0.28% for the week ending on July 27, on par with the 2017-2019 average of the same week and slightly off from the previous week’s -0.37%, the decline in prices from the car segment was more noticeable when comparing it to the prior week. It dropped -0.21% this week, a visible improvement from the -0.40% last week.The decrease in segment prices for trucks/SUVs remains unchanged.

“The Canadian market continues to show a gradual decline. More than 27% of market segments saw an average value change greater than ±$100, showing a slight decrease compared to the previous week,” said Canadian Black Book in its Market Insights report.

“Among these segments, car segments saw a decrease 13% larger than that observed in the truck segments,”  they continued. “Monitored auction sale rates ranged from 25% to 77%. A continued drop in floor prices highlights the variations in sale rates across different lanes.”

In the car category, the smallest change came from compact cars (-0.02%), followed by full-size cars (-0.10%) and premium sports cars (-0.10%). Sports cars (-0.47%), near-luxury cars (-0.34%), and sub-compact cars (-0.32%) revealed the greatest decreases. 

In the truck/SUV category, the largest depreciations were compact luxury crossovers/SUVs (-0.84%), mid-size luxury crossovers/SUVs (-0.62%), full-size vans (-0.57%), and small pickups (-0.53%). However, full-size crossovers/SUVs managed an increase (+0.03%).

The full report is available here. 

dealer, C. auto, Lefko, P., & Phillips, T. (2024, July 30). Used vehicle market sees notable difference in car segments. Canadian Auto Dealer. https://canadianautodealer.ca/2024/07/used-vehicle-market-sees-notable-difference-in-car-segments/

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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/