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%).

	This Week	Last Week	2017-2019 Average (Same Week)
Car segments	+0.03%	+0.05%	+0.04%
Truck & SUV segments	-0.20%	-0.14%	-0.27%
Market	-0.09%	-0.05%	-0.12%

 

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

The Canadian used wholesale auto market was down -0.29%, according to Canadian Black Book. The 2017-2019 average was -0.23%. The Canadian wholesale market for used cars declined, down -0.33%, and trucks were also down more from last week at -0.25%.

Only one segment of the car market made gains, with sporty cars up 0.53%. All other segments declined. Near luxury cars were down the most, at -0.87%, followed by luxury cars, down -0.80%, and full size cars down -0.52%. Premium sporty cars were down -0.33%.

For trucks/SUVs, all the segments experienced decreases except for full size vans (up 0.19%) and minivans, which were even from last week. The average decrease was -0.52%. Compact vans declined the most, down -1.00%, followed by sub-compact luxury crossover/SUVs were down -0.80%, compact  crossover/SUVs were down -0.47%.

The average listing price for used vehicles decreased week-over-week, as the 14-day moving average declined to $36,600. Analysis is based on approximately 120,000 vehicles listed for sale on Canadian dealer lots. The overall decreases were slightly larger 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. The US market exchange rate remains favorable for exportation, leading to a continuous stream of vehicles south across the border. “Supply remains low while demand is high on both sides of the border. Upstream channels continue to tap supply before it can be made available at physical auctions.”

CBB industry news reports the yield on Canada’s 10-year government bond rose past the 3.35% mark in February, tracking the rise for global bond yields to a three-month high as strong economic data and hawkish signals by Fed officials ramped up expectations of higher interest rates for longer by the US central bank. Canada’s annual inflation rate fell to 5.9% in January of 2023, the least since February 2022 and below market expectations of 6.1%, slowing from the 6.3% in the previous month amid base-year effects.

The ongoing battle for semiconductors shows the situation improving but not for all OEMs as the latest numbers on shortages find another 35,000 vehicles cut from global production this week.

A new KPMG Poll shows results for a greener alternative transportation in Canada with 6 in 10 consumers planning to purchase a “greener” vehicle in 5 years or less, but likely not following through citing higher financing costs, delays in delivery, and concerns over battery range and charging reliability as key barriers to entry.

 

 

Lefko, P., & Phillips, T. (2023, February 24). Used vehicle prices decline, despite tightening inventory. Canadian Auto Dealer. Retrieved April 18, 2023, from https://canadianautodealer.ca/2023/02/used-vehicle-prices-decline-despite-tightening-inventory/

An Ontario woman says she lost a $2,000 deposit after she bought a used car and then changed her mind.

“My husband was under the impression there was a cooling off period and through this experience we found out that there wasn’t,” Charnell Iweze of Brampton, ON told CTV News Toronto.

A “cooling-off period’ is a period of time following a purchase when the buyer may choose to cancel a purchase or contract, or return goods which have been supplied, and obtain a full refund.

If you ever sign a contract in your home to buy something and change your mind you have ten days to cancel the agreement for any reason.

But if you’re shopping for a new or used vehicle there is no cooling off period once an agreement is signed which many people don’t know

Iweze said she and her husband had been considering a move to Alberta and wanted to buy a vehicle here and have it shipped out west.

“We are exploring our options about moving to Alberta,” said Iweze.

Iweze found a 2009 Dodge Journey with a selling price of $6,800. She decided to buy it, signed a contract and put down a $2,000 deposit.

But after she put down the payment on the vehicle she said she found out the cost of shipping the SUV out west was going to be too expensive.

“We put down a deposit for the car, but we let them know we would like the deposit back and they said they are keeping the entire amount,” said Iweze.

Iweze said she was unaware she couldn’t cancel the contract, and didn’t know there is no cooling off period when it comes to motor vehicle contracts in Ontario.

“We do not have a cooling off period in this province for vehicle sales,” said Maureen Harquil, CEO of the Ontario Motor Vehicle industry Council (OMVIC).

OMVIC oversees car dealers in Ontario and once you sign a contract to buy a vehicle it is a legally binding agreement and the dealership may decide to keep your deposit if you don’t follow through with the purchase.

“That’s why when you’re going in to sign that bill of sale and purchase or lease a vehicle it says right on the contract all sales are final and it is in Ontario,” said Harquil.

Iweze feels there should be a cooling off period for vehicle sales and is still hopeful she’ll get all or some of her deposit returned.

A dealership may decide to return a deposit to show goodwill as maybe you’ll be their customer in the future, but they don’t have to.

The best advice is to be extremely careful signing any contract for a vehicle unless you’re absolutely sure you want it.

Under Ontario law, there is a 10 day cooling off period when you sign contracts in your home, pay in advance to join a fitness club or purchase a timeshare. There is also a two day cooling off period if you get a payday loan. 

 

Foran, P. (2022, December 14). Ontario woman loses $2,000 deposit when she decides not to buy a car. Toronto. Retrieved March 31, 2023, from https://toronto.ctvnews.ca/ontario-woman-loses-2-000-deposit-when-she-decides-not-to-buy-a-car-1.6195218

Continuing to work with our friends and colleagues at the Used Car Dealers Association, DesRosiers Automotive Consultants once again reached out to the used vehicle retailer community. Over 400 UCDA members responded to our survey with both independent dealers and the used vehicle arms of franchised new vehicle dealers offering their perspectives on the used vehicle market in 2022 and in the months to come. From a sales volume perspective, 2022 was not an easy year for used vehicle dealers with volume declines evident for both franchise and independent dealers. “Looking forward, many in the community are hopeful volumes will recover in light of improvements in supply alongside some moderate price declines” commented Andrew King, Managing Partner at DAC. He continued, “However whether the hopes for improved volumes will hold up in light of a weakening economy and improved new vehicle availability remains to be seen.”

UCDA members were surveyed regarding their sales volumes over the past four years to offer some context for the performances seen in 2022. For new vehicle dealers, used vehicle sales dropped in 2022 to just below pre-pandemic levels on average. For used vehicle dealers, sales saw a decrease in 2022 as well although the overall average of 160 units settled above the average of 157 cited for 2019.

When asked about their sales expectations for 2023, both franchised new vehicle dealers and independent used vehicle dealers were optimistic. New vehicle dealers cited an expectation of 308 units sold on average for this year, rising well above the levels of the last four years. Similarly, used vehicle dealers expect to sell an average of 186 units, also well above the past four years. Achieving such lofty goals may prove challenging given industry dynamics, but for now the optimism amongst respondents was widespread.

When asked about supply and the sourcing of vehicles—a major point of concern in recent years—dealers were somewhat split. The largest portion of both new and used vehicle dealers noted that sourcing of used vehicles improved in the second half of 2022, at 43.7% and 43.8% respectively. However, 38.3% of used vehicle dealers saw their situation get worse with 32.2% of new vehicle dealers noting the same thing.

To an extent, this split in opinion followed into the question of used vehicle prices. Franchised new vehicle dealers overwhelmingly noted that used vehicle prices decreased in the fourth quarter of 2022 with 66.7% of responses indicating as such. For independent used vehicle dealers, a slim majority of respondents noted prices increasing for used vehicle sales with 34.4% citing that prices decreased. On average between the two groups, 47.4% of responses indicated dropping prices, 38.6% indicated rising prices, and 14.0% indicated no change.     Newsletter: “Used Vehicle Update – Volumes Fall in 2022 as Sourcing Improves Marginally”, DesRosiers Automotive Consultants Inc. March 7th, 2023. More information on these numbers can be found in the DesRosiers Automotive Reports published by DesRosiers Automotive Consultants Inc., or contact Daniel Azarov at daniel@desrosiers.ca. Copyright © 2023 DesRosiers Automotive Consultants Inc., All rights reserved.

Will car prices go back to prepandemic levels any time soon? My partner would like to trade in our five-year-old SUV for something new, but it looks like we’d have to wait months for a new vehicle. With new and used prices still so high, everyone is telling us that it’s a terrible time to buy. I think we should hold on to what we have for the next couple of years. Our SUV is fine, so we don’t urgently need to switch. – Caroline, Montreal

While the new and used car market is slowly cooling, it could take years to see a significant drop in prices – and they may never return to prepandemic levels, an industry analyst said.

“Looking at the forecast four or five years from now, it will be coming down every year, but it’s gradual,” said Daniel Ross, senior automotive analyst at Canadian Black Book, a Markham, Ont.-based company that provides vehicle valuations. “It’s not likely to get to the levels we had seen before the pandemic.”

As automakers cut production of new cars because of a worldwide microchip shortage, buyers who were facing empty lots and lengthy waits for new vehicles turned to used cars instead. In 2021, used car prices went up by an average of 40 per cent, Ross said.

In the past four or five months, used car values have dropped by about 10 per cent, on average. That is partly because higher interest rates are beginning to curb consumer spending, Ross said.

Demand for used cars has declined – though there are still few cars to choose from on many dealer lots – mostly because of the increased cost of borrowing and consumer frustration with high prices.

But that doesn’t mean all used cars are significantly cheaper than they were this time last year, Ross said.

“We’ve seen smaller cars hold their value better while larger cars have seen a higher decline,” Ross said.

There is still strong demand for smaller SUVs and compact cars because the “entry price is cheaper” and they tend to have better gas mileage, Ross said. They’re cars for people who don’t want to spend $40,000 or more on an SUV.

For instance, we looked at national listings on Autotrader.ca, a large online auto marketplace, for the 2017 Honda Fit. The small hatchback had an original suggested price of $15,050 to $23,010. But right now, used models – including several with more than 125,000 kilometres on them – range between $15,795 and $26,380. That is more than the six-year-old cars cost when brand new.

No real deals any time soon?

While automakers could slowly start to get enough parts toward the end of this year to increase car production, they won’t immediately be able to catch up to demand, Ross said.

Plus, with fewer cars being built over the past two years, expect a shortage of used cars from model years 2021, 2022 and 2023.

“We’re starting to edge our way out of this mess, but we’re still seeing issues producing heavy volumes and that will tie into used volume down the road,” Ross said. “We’ve already had two years of really low [production] volume and that means the used market is going to have a suppressed amount of volume three, four and five years from now.”

That shortage will keep used car values elevated and keep demand relatively high – even with these high interest rates, Ross said.

As manufacturing costs have gone up because of the parts shortages, new car prices have been climbing, too. Most manufacturers have been raising suggested prices every year – or even several times a year, Ross said.

“At the high end, we have seen as much as a $10,000 increase in suggested price from one year to the next,” Ross said. “Anecdotally, I purchased a new car in November and the price has already gone up $600 just since then.”

Also, with interest rates so high, it will cost you more to finance a new vehicle.

So, unless you need a car urgently – say, if your car was damaged beyond repair in a crash – it’s probably better to wait, Ross said.

Spending money on service or repairs that will keep your current car on the road longer is “probably the smartest play” for now, he said.

“But our outlook is positive,” he said. “Buyers should have more negotiating room in the next coming years.”

 

Tchir, J. (2023, January 22). Is now a good time to buy a new car, or will prices go down in 2023? The Globe and Mail. Retrieved January 27, 2023, from https://www.theglobeandmail.com/drive/mobility/article-is-now-a-good-time-to-buy-a-new-car-or-will-prices-go-down-in-2023/

Finding affordable and quality vehicles has been difficult for the last couple of years — be it due to semi-conductor shortages or supply chain issues — and according to some industry experts, the Canadian auto market will continue to reflect past trends for most of 2023 before things ease up a bit for consumers.

“We’re in probably year two of a semiconductor shortage that is causing automakers to make fewer cars than they can. And because of that, there’s a squeeze in supply and it’s been pushing prices up,” Flavio Volpe, president of the Automotive Parts Manufacturers Association, told Global News.

The vehicle supply shortages began at the start of the COVID-19 pandemic when demand was forecast to dwindle significantly.

Supply shortage

Gerry Duffy, who teaches supply chain management and logistics at the Southern Alberta Institute of Technology, told Global News last year that when demand picked up for vehicles, supply just couldn’t keep up.

“A lot of the automotive industry is still struggling to get their hands on enough semiconductor material in order to make all of the components that they require to put their cars together,” said Duffy at the time.

The tiny semiconductor chips that have been in short supply are extremely essential — they account for safety functions in vehicles like airbags and brakes, as well as bonus features like GPS or touchscreen entertainment systems.

The shortage of new vehicles also led to a hike in price for the ones that were readily available on lots. Duffy said a quick turnaround time meant a significant uptick from the manufacturer’s suggested retail price (MSRP).

There was an “unprecedented demand for used cars,” said Volpe.

The average price of a used car in Canada now is more than $35,000 — a nearly 50-per cent increase over a year’s time, according to a December report by the Canadian Black Book.

“For the first time in history, the value of used cars has gone up…when usually it’s the most depreciating asset that a consumer can buy,” Volpe said.

Mark McMullenn, the general manager of Mark Wilson’s Better Used Cars in Guelph, Ont., told Global News in April that after his 2019 Ram 2500 was sold to a client for $41,900, McMullen bought it back months later for $2,000 more, despite the client adding 80,000 km to the odometer.

He was then approached by another Onatrio dealer who offered to purchase the Ram at a value of $50,000.

“This is historical. This has never happened,” said McMullen, who manages a business that dates back to 1961. “Never could you buy a vehicle and drive it, and it actually appreciates.”

What to expect from the market?

According to the latest December report by Statistics Canada, sales of motor vehicles fell 3.2 per cent to $3.4 billion in October from last month as lack of materials and microchip shortages continued to plague several auto manufacturers.

“Most experts are predicting that used car prices are going to drop 10 to 20 per cent in 2023. So, if I was advising someone who is buying a car right now, if you have a used car, a newish used car, this is the peak value you’re ever going to get for it on a trade end,” said Volpe.

Contrary to what Volpe suggests, Shari Prymak, senior consultant at Car Help Canada, doesn’t think it’s a good time to be selling used cars.

“A lot of dealerships were struggling for inventory for a long time because of the car shortage. And now we’re seeing a slowdown in terms of used car sales,” said Prymak.

He says dealerships are now likely going to be stuck with cars that they may have overpaid for, and they might have to reduce pricing in order to move them off their lots.

“I think it is going to be a hard time to sell used cars and even sell new cars to some degree because we’re seeing interest rates going up and because interest rates for new car loans and used car loans have gone up by at least a few percentage points, a lot of buyers who intended to buy a few months ago or ordered a car a few months ago may no longer be able to do so because they can’t afford the payments anymore,” said Prymak.

As a result, he thinks there are going to be cancellations of orders in the coming months, which will lead to dealerships seeing slower sales.

Volpe is optimistic and expects prices of new cars to plateau and come down a bit in the coming months.

“I think what consumers can look forward to in 2023 is that we’re going to solve the semiconductor shortage globally, probably in the third and fourth quarter,” said Volpe.

“So that means new cars are going to be made at the capacity of the carmakers actually have. There will be a lot more choice, a lot more inventories,” he added.

Prymak, on the other hand, doesn’t expect any significant changes for the market in 2023.

“The environment that we have right now for car buyers, it’s going to continue this way for most of the new year,” said Prymak.

Expectations will have to ‘change’

Prymak explains that just like in 2022, people can expect not to be able to buy a new car right off the lot from a dealership.

“More often than not, you have to order a car and wait anywhere from a few months to several months for that car to arrive,” Prymak said.

He also says that there’s no longer going to be a best time of the year or month when consumers can get better deals or rebates because, with the major shortage the car markets are experiencing, “these things no longer exist.”

“You can no longer save money by purchasing a car that’s a lightly used one,” said Prymak. “More often than not, lightly used cars cost almost as much as a brand-new car.”

And, that’s because there’s no wait time and consumers can get it right away, he explained.

“The car market has completely changed, and your expectations have to change as well. And you have to understand these things before you shop (or) go to a dealership,” said Prymak.

Is the future electric?

Cara Clairman, president and CEO of Plug’n Drive, a non-profit encouraging electric vehicle use, told The Canadian Press last week that the toughest part of promoting the change from gas-powered vehicles is availability.

“Long waiting lists are definitely discouraging consumers that are ready to make the switch,” she said. “And if we all agree that we’re in a climate emergency, we need to help consumers make the switch as soon as possible.”

Prymak says that the transition to electric cars is “going to be very slow for sure.”

“Electric cars are next to impossible to buy. Most of them have a minimum waiting period of, I would say, eight to 12 months if not longer. Secondly, they’re extremely expensive,” he said.

Prymak explains that most electric vehicles (EV) cost far more than a traditional gas car or even a hybrid car.

“Even though we do see new electric cars that are going to be coming onto the market in the next few years, chances are it’s going to take several years before we see some truly affordable options that average consumers can buy,” he said.

The infrastructure for charging stations will also need to improve, and they would need to be spread across several locations and major cities across Canada, he added.

According to a Statistics Canada report, in the first six months of 2022, sales of fully-electric and plug-in hybrid vehicles made up just 7.2 per cent of new car registrations. For all of 2021, the proportion was 5.2 per cent.

According to Volpe, electric vehicles are also the most affected products in the current market because of semiconductor chip shortage.

“For obvious reasons, you need more semiconductors for vehicles that are electrified,” said Volpe.

But he believes that three years from now, every single lot in every city across Canada will have an electric vehicle option for consumers, but right now “a lot of people are despairing” because EVs aren’t available everywhere.

“We are going to see a dramatic shift in what’s available for people who want an electric vehicle in two or three years, and it’ll never go backward,” said Volpe.

Last week, Minister Steven Guilbeault proposed that one-fifth of all passenger cars, SUVs and trucks sold in Canada in 2026 will need to run on electricity under new regulations.

By 2030, the mandate will hit 60 per cent of all sales and by 2035, every passenger vehicle sold in Canada will need to be electric.

Buying a new car?

Prymak’s advice for consumers when buying a car is time investment. Plan ahead and order the car well in advance if you’re looking to buy new, he said.

“I would encourage consumers to order a car from the factory. That is the best way to get a fair price and not overpay with a heavy markup or… expensive add-ons,” said Prymak.

Another strategy is to get multiple quotes from different dealerships, he said. This will help give an idea of how much a car actually costs.

“Don’t just go to the closest dealership… assuming they’re going to give you a fair deal, because the dealership closest to you might, in fact, be the one that’s charging a lot of extra fees, charging a very large markup, or forcing you to pay for expensive extras,” he said.

“Take the deal from whichever one you feel is offering the (fairest) price, is the most professional and transparent with you, and shop that way,” Prymak said.

Buying a used car? May want to ‘wait’

Shawn Vording, vice-president of product and sales at Carfax Canada, told The Canadian Press in September that it’s important for consumers who are looking at the used car market to do their research and know the vehicle that they are considering.

“Make sure you know the car that you’re buying and so know the history hasn’t had an accident, has it been maintained, know the current condition, is it going to need tires and brakes in the next three months or has this car been reconditioned to a like-new status,” he said.

“If the price doesn’t make sense, there’s probably a reason why and so have an independent third party inspect the vehicle,” Vording added.

If a consumer is looking to finance a used car, Prymak expects that a higher interest rate on car loans is going to make it harder for consumers to afford the payments.

“That’s going to deter some buyers from the market,” he said.

Volpe’s advice, on the other hand, is to wait.

“If you can wait until the second half of 2023, the same car you want will be less expensive than if you wait until the second half of next year. Instead of buying a used car, you’re back in the new car market. Be the first owner and then get the options that you want,” he added.

 

 

Al-Hakim, A. (2022, December 30). Planning to buy a car in 2023? expectations will have to ‘change’, experts caution – national. Global News. Retrieved January 11, 2023, from https://globalnews.ca/news/9356719/canada-market-2023-planning-to-buy-a-car/

 

 

Austerity is a tough word to hear and ugly as a wide-ranging economic policy, but with interest rates rising and a looming recession, it may be time to take a cold hard look in your garage.

Given the high price of owning and driving a vehicle these days, now is a good time to reverse the long-running trend toward large, heavy, expensive and gadget-stuffed vehicles. The benefits will go well beyond saving money, but money’s not a bad place to start.

The average price of a new vehicle hit an all-time high in July: $55,000, according to AutoTrader. There are many reasons for this including high demand and low supply, owing to parts shortages. (And when automakers do get parts, they tend to use them on higher-end vehicles.) As a result, profits at car companies are up and some executives have said that even when supply-chain issues have been resolved, they plan to keep a lid on supply to keep prices afloat.

Used-car prices have dipped slightly, but the average price was still just shy of $38,000 in July, which is 32 per cent higher than at the same time in 2021.

Not only are cars expensive, but borrowing money to buy or lease one is now more expensive too, because the Bank of Canada keeps raising interest rates to keep inflation in check.

One-quarter of new vehicles in Canada are leased, while 57 per cent are financed, said Robert Karwel, senior manager at consumer research firm J.D. Power. Of those financing a new vehicle, 55 per cent of them are borrowing the money over seven or eight years.

“In Canada, monthly payment is king,” Karwel said. Stretching out the term keeps monthly payments lower – making bigger SUVs attainable. But now, with interest rates ranging from about 5 per cent to even 8 per cent on car loans, the cost of borrowing is adding thousands of dollars to the overall vehicle price. For instance, a $40,000 loan at 5 per cent paid monthly over seven years would cost $7,490 in interest. At 8 per cent over eight years, it would cost $14,285 – or an extra $6,795 for the same vehicle.

Terms have been getting longer too. Karwel said it may not be long until we see nine-year finance terms on new cars.

Once you’ve bought the car, you’ve got to run it, and drivers aren’t getting a break there, either. Gas prices are still hovering at about $1.70 a litre after smashing through the $2 barrier this past spring.

In other words, if you’re shopping for a car, it might be a good idea to think hard about what you actually need and consider downsizing. (Small cars can be both practical and fun to drive. My own family car for the summer months is a two-door 1991 BMW 3 Series that – okay, isn’t for everyone – but easily accommodates a baby seat, stroller, two adults and our stuff. Newer compact machines aren’t the penalty boxes they once were either. The latest Honda Civic hatchback, for example, is an incredibly well-rounded automobile.)

Of course, some drivers really do need huge cars. If you have three children, you’re going to want a three-row SUV or a minivan. If you’re a contractor, a full-size pickup may be necessary.

The high costs of car ownership will hit those in the lowest tax brackets the hardest, perhaps even pushing them out of the car market entirely.

But for most other people, buying something smaller and more frugal than the burly vehicles we have become accustomed to could pay dividends.

About 80 per cent of the new-vehicle market consists of SUVs and pickups. Not only are they more expensive to buy and run, but they can be more dangerous to pedestrians in the event of a collision. Bigger vehicles are dirtier too; Canadians drive some of the largest and most-polluting vehicles in the world, on average, according to a 2019 report by the International Energy Agency. So you could save money, save on gas, help the environment (a little) and perhaps even save a pedestrian by downsizing.

When gas prices peaked earlier this year, some dealers saw an influx of people looking to sell their gas-guzzling pickups. Drivers who really needed a truck surely kept them, but drivers who bought a hulking truck as a luxury lifestyle accessory understandably went looking for more economical alternatives.

The large, heavy, powerful and gadget-packed vehicles we have grown to love are – let’s be real – overkill for the vast majority of drivers.

Nevertheless, Karwel doesn’t think high interest rates and the growing cost of cars will reverse the trend toward bigger types of vehicles and longer finance terms.

“No one’s holding a gun to consumers’ heads when they’re buying these things. Vehicles are desire-driven purchases. We want nice things, and we want them well equipped,” Karwel said. Maybe we’re hopelessly addicted to excess.

 

Bubbers, M. (2022, December 13). That big, burly truck or SUV is killing it. your finances, that is. The Globe and Mail. Retrieved January 6, 2023, from https://www.theglobeandmail.com/drive/mobility/article-that-big-burly-truck-or-suv-is-killing-it-your-finances-that-is/

 

In terms of dollar volume retail sales, the automotive industry varied greatly at the end of the third quarter. Gasoline stations saw record retail sales on the back of the sharp increase in gasoline prices earlier in the year – a performance that is likely to drop in Q4 based on declines in gas prices in recent weeks. Following at a distance, automotive parts, accessories, and tire stores saw retail sales climb 10.8% above the already elevated levels seen in the same time last year as the aftermarket maintained its strong performance. New vehicle dealers saw retail sales climb a further 2.3% in the first three quarters of 2022, despite falling new vehicle sales, as vehicle price increases and strong performance at service departments help boost overall dealer performance.

Used vehicle dealers noticed a setback in terms of retail sales, with a decline of 6.5% at the end of the third quarter. Used vehicle prices have begun trending downwards in recent months after the 25+% gains seen in the past 2 years. As such, used vehicle dealers remained in good shape, with retail sales staying well above pre-pandemic levels. “When it comes to retail sales, different sections of the auto industry are seeing vastly different performance relative to the previous year” commented Andrew King, Managing Partner at DAC. He continued “However, from a broader perspective they remain largely ahead of pre-pandemic levels despite the uneven nature of the market this year.”

DAC produces forecasts of new vehicle sales, used vehicle sales, and aftermarket sales for more than 25 different product areas – both nationally and at a regional level across the country.

 

More information on these numbers can be found in the DesRosiers Automotive Reports published by DesRosiers Automotive Consultants Inc.

Copyright © 2022 DesRosiers Automotive Consultants Inc., All rights reserved.

Getting your hands on a new set of wheels won’t get easier anytime soon

Higher interest rates is the latest challenge facing car dealerships as they grapple with plenty of market hiccups since the pandemic. (Mark J. Terrill/The Associated Press)

After months of navigating supply chain and inventory issues in the new and used vehicle markets, Ontario car dealers are now dealing with another issue — the higher cost of borrowing.

The Bank of Canada has raised interest rates six times since March. Rates have shot up from 0.25 per cent to 3.75 per cent and the bank has warned Canadians, it’s not finished yet.

It means car dealers must grapple with yet another hurdle in an industry that has seen plenty since the pandemic, including the ongoing shortage of semi-conductors — the tiny chips that act like a car’s brains, calibrating everything from fuel injection, to anti-lock brakes, to infotainment systems.

The shortage has upended the vehicle market and driven up the price of used vehicles. Now some dealers say they’re worried rising interest rates may cause people to put off buying a new car as long as they can. 

‘It kind of panics people’

“Every time there’s a jump in the interest rate, it kind of panics people,” said Kamal Zabien, the owner of Cedar Auto, a used car dealership in London, Ont., who’s seen sales decline each time the prime rate creeps up. 

Zabien said the people who finance their cars are less likely to consider replacing their old ones because of higher interest rates. 

“Usually, our rates were five to six per cent, but now they’re eight or nine per cent,” he said. “I think it’s a shock right now.”

Light vehicle sales last month saw the lowest October sales figures in 13 years, according to the latest report from DesRosiers Automotive Consultants. The company said only 121,653 vehicles were sold across the country last month — a drop of 5.3 per cent nationwide, compared to a three per cent drop in Ontario. 

The latest sales report from DesRosiers Automotive Consultants shows Canadian light vehicle sales dipped 5.3 per cent nationwide in October. (DesRosiers Automotive Consultants)

“It’s been a pretty tough time to buy any car, used or new,” said Peter Frise, a University of Windsor automotive engineering professor and associate dean, who studies the vehicle sales market closely to inform the school’s research and development programs. 

He said if the decline in sales continues, it should force prices back down to Earth, especially in the used car market, where a surge in demand caused the price of many cars to be distended beyond their historical norms. 

“The price of 10-year-old used cars was not too far off what the price of those cars are brand new, which doesn’t make sense economically.”

“Make no mistake, the supply change is still a challenge. I think that it will recover,” he said. “We have interest rates going up, and that’s making affordability lower for consumers.”

‘I think it’s stabilized somewhat’

“As the supply of new cars increases, the supply of used cars will increase as well, and that will moderate prices, I think.”

Industry watchers say while interest rates will likely influence some people’s financial decisions at the dealership, it’s more likely to delay their decision than stop it altogether — because few things offer as much convenience as a car. (Nam Y. Huh/The Associated Press)

“I think it’s stabilized somewhat,” said Deborah Beauchamp, a 25-year veteran of the vehicle business who sells new and used cars at Oxford Dodge in London, Ont.

She said while delays still remain for specific makes and models, the wild peaks and valleys that defined the pandemic years are starting to iron themselves out as supply issues get resolved. 

While interest rates will likely influence some people’s financial decisions on the lot, she believes it’s more likely to delay their decision than stop it altogether — because few things offer as much ease and convenience as a car. 

“All in all, I think people are still pretty positive. Hopefully, it stays pretty consistent. Hopefully, our inventory levels keep going in the right direction.” 

 

Butler, C. (2022, November 22). Why getting your hands on a new set of wheels won’t get easier anytime soon | CBC News. CBCnews. Retrieved December 7, 2022, from https://www.cbc.ca/news/canada/london/car-dealers-1.6658937