Given the announcements last week by the Federal Government regarding Canada’s immigration targets, we at DAC thought it would be timely to look at the Canadian new light vehicle sales market from a population perspective. Due to the pandemic and semiconductor shortages, sales decreased dramatically in 2020 and remained down as vehicle shortages held back the market in 2021 and 2022. However, amidst this environment, one factor that does not receive enough consideration is the rapidly increasing Canadian population.

Between 2017 and 2022 the number of Canadians of driving age (defined broadly as 15+ years) increased by a stunning 2.2 million people. Putting this into a sales perspective, sales of new light vehicles among reporting manufacturers reached 67 units per 1000 people (aged 15+ years) in the peak sales year of 2017. With declining sales and an exploding population this number decreased by a remarkable 32% by 2022, to only 45 vehicles per 1000 driving aged population. “When population growth is taken into account, the ground that the Canadian new light vehicle sales market needs to re-capture widens” commented Andrew King, Managing Partner at DAC. “However, 2023 has seen a pattern of sustained sales increases thus far and rising population should support additional market demand in the medium and long terms.”

Azarov, D. (2023, November 8). The Impact of Canada’s Exploding Population on Vehicle Sales. DesRosiers automotive reports.

Benefits for Used Car Dealerships

The advantages for a used car dealers to offer financing are clear and well know since almost 50% of all car sales are financed. To name a few of the reasons why offering financing to your customers is a good idea, please continue to read the following points:

• By offering financing to customers, businesses can boost their sales, and increase their average sales transaction size. Financing allows customers to make regular, affordable payments toward the cost of a big-ticket item, instead of paying the full price up front. Taken in consideration that according to the AutoTrader Price Index Report, the average new vehicle price in June 2023 was $66,288, 21.3% above the price in June 2022. As for used cars, the national average is currently $39,645, 4.1% higher than it was the prior year. Flexibility in customer payments will make a big difference. Cost is often the first consideration for customers shopping for a big purchase: they want to know if vehicle they want will fit within their budget.

• By leveraging auto finance, you can eliminate the sting of sticker shock for your customers and shift the conversation away from total costs. Instead, you can show customers how low monthly payments can allow them to buy exactly what they want. Financing allows you to re-frame the sales conversation, shifting the focus away from budget constraints to the value the purchase will bring.

• Financing increases a customer’s purchasing power. Not only does financing make it easier to close a potential sale, but it’s also a powerful tool for upselling. You can demonstrate to customers how a small increase in their monthly loan payments can allow them to afford upgrades or additional products. The option to add after market products, like warranties, winter tires, rust protection packages, etc. will increase the profitability of the transactions.

• Offering consumer financing can give you a competitive advantage, allowing smaller dealerships to compete with franchises and Automotive Groups. Your business can attract new customers by offering financing plans. If a prospective customer is shopping around for a big purchase, they may be more likely to choose your company over a competitor that doesn’t provide financing options. It can also help you earn repeat business, as customer credit programs often motivate customers to return for future purchases. A study shows that 93% of buyers that use consumer financing for the first time would use it again.

• Allowing finance as an option to manage better your customer budget, they can take advantage of a sale that can be perceived as a “Good Offer” without worrying about affordability in that regards. Fortunately, some new and used cars have dropped in price, and car buyers looking to save money can still find deals. It is expected that average car prices will reduce gradually, but inventory has remained an issue due to ongoing supply chain disruptions and inflation.

For a used car dealer, finance could make the difference between and a day cleaning cars or a day with a successful sale.

In our next part of this 3 part article, we will be reviewing the benefits of financing for customers.

Gonzalez, N. review by Risman, M (2023, November 3). Why to finance vehicles instead of selling for cash?. Ontario Underwriters Newsletters. https://on-u.org/newsletters/

Canadian used wholesale market prices have not slowed, with prices down -0.26% for the week ending on Sept. 2 compared to the prior week’s -0.30%, according to Canadian Black Book’s latest Market Insights report.

The car segment was down -0.09% (similar to the previous week), and the truck/SUV segment slipped -0.42%, which is slightly less than the prior week. Three out of 22 segments’ values were up for the week.

In the United States, the overall car and truck segments were down -1.40% last week and -0.86% the prior week. The volume-weighted car segments declined -1.44% versus the previous -0.83%, and the volume-weighted truck categories decreased -1.38% from -0.87% the prior week.

In Canada, eight of the nine car segments experienced a decline in pricing, with the biggest decreases coming from prestige luxury cars (-0.28%), luxury cars (-0.18%), and sub-compact cars (-0.17%). The one increase came from mid-size cars (+0.14%).

For the truck/SUV categories, 11 of the 13 segments showed a decline —  notably full-size vans (-0.93%), full-size crossovers/SUVs (-0.74%), and compact luxury crossovers/SUVs (-0.68%). On the up side, compact vans (+0.61%) and small pickups (+0.06%) experienced an increase in value.

The average listing price for used vehicles, as per the 14-day moving average, was at approximately $38,250. The analysis is based on around 189,000 vehicles listed for sale on Canadian dealer lots, according to CBB.

You can read the full report here.

Lefko, P., & dealer, C. auto. (2023, September 6). Used vehicle price decreases continue, decline slightly less this week. Canadian Auto Dealer. https://canadianautodealer.ca/2023/09/used-vehicle-price-decreases-continue-decline-slightly-less-this-week/

People hanging on to vehicles for longer leaving dealers with little inventory

The used car market is still experiencing a shortage of vehicles even as the automotive sector recovers from supply chain woes that have plagued the industry since the onset of the COVID-19 pandemic. Used vehicles for sale are displayed at an automotive dealership in Ottawa on Friday, Aug. 11, 2023. PHOTO BY SEAN KILPATRICK/THE CANADIAN PRESS

TORONTO — The used car market is still experiencing a shortage of vehicles even as the automotive sector recovers from supply chain woes that have plagued the industry since the onset of the COVID-19 pandemic.

Used vehicles became an alternative to consumers when the supply of new vehicles was severely limited during the pandemic, says Daniel Ross of automotive insights company Canadian Black Book (CBB), and prices for used cars started to rise.

“But after the increase of interest rates and inflation as a whole, affordability has become the main concern,” he says of the latest moves by the Bank of Canada to clamp down on rising costs.

Ross, who is the senior manager of automotive industry insights at CBB, says that’s driving buyers toward smaller, used vehicles rather than previously popular SUVs, pickup trucks or new vehicles with higher market prices — a trend expected to continue for the next 12 to 18 months.

But there are not enough used cars in the market to meet the growing demand. DesRosiers Automotive Consultants Inc. says dealers are having a hard time getting used cars and projects a slowdown in sales in the coming months.

The latest estimates by DesRosiers show the 2023 sales of new cars at franchised used dealers are expected at 305 units per location, and at just 140 for independent used car dealers. That’s lower than the sales projections cited at the beginning of this year.

Sourcing troubles worse

At least 51 per cent of the car dealers surveyed said their sourcing troubles for used vehicles have worsened since the pandemic, a report earlier this month by DesRosiers found.

The supply constraint is partly because people are holding on to their vehicles longer than usual, creating a bottleneck in the supply chain for used cars, says Jim Hamilton, interim manager at the Used Car Dealers Association of Ontario.

On average, he said, people look to sell their vehicles after four or five years of ownership and move on to newer make.

“Now, they’re hanging on to the cars double that time, which means more money in the service business — oil change, brake repairs and maintenance.”

A separate survey by DeRosiers shows that aftermarket retailers reported higher sales for automobile parts during the first quarter of 2023 — most of them having better sales compared to pre-pandemic levels.

June statistics for retail sales in Canada were driven by motor vehicles and parts dealers, which were up 2.5 per cent from May, much higher than the overall 0.1 per cent growth.

Ross of CBB is seeing those trends, too. He said people are buying out car leases before maturity, spending more on repairs and keeping them out of the used car lots.

Daily rental fleets are also following in the footsteps of regular buyers and holding on to the vehicles longer because they can’t replace the old fleet with the new ones. That means those cars aren’t entering the used market as expected

“This puts constraints on supply even further than what we’ve had in the past,” Ross said.

Between 2020 and 2021, used car prices soared 34.5 per cent as car manufacturers dealt with unprecedented backlogs in the supply of car parts to bring new vehicles to showrooms.

Now that the cost of used cars is stabilizing, people who may have been sitting on the fence in the last two years because of high prices are getting into the market.

Cindy Marques, a financial planner at Open Access Ltd., says she has noticed her clients are moving to buy cars only because they have to — lowering their expectations for new cars or opting for used to fit within their budget instead of delaying purchases.

Limited financing

“It’s not a matter of waiting for interest rates to go down but to bite the bullet and buy different cars than they hope they would get,” she said.

Limited financing options are also a factor in making the used car markets more attractive for buyers, said Ronald Corbett, vice-president for Toronto and southwestern province at Desjardins Ontario Credit Union.

With decreasing purchasing power and higher interest rates, Corbett said, qualification prospects for car loans are a little more difficult.

“People are more apt to be pinching every penny and not wanting to put that extra $40 or $60 a month toward any car purchase when they’re looking at prices for groceries, mortgage, rent and other costs,” he said.

Ross said the supply chain for some new cars has improved this year, with more cars now available at showrooms, alleviating some pressure from used car demand. Still, it remains sporadic.

“With the added effect of higher (market prices), the showrooms are not necessarily seeing as much gravity behind consumers coming to the new car market, as they previously have seen,” Ross said.

Years of limited access to new cars has shifted conditions.

Previously, Ross said, customers bought a new vehicle, then replaced it with another new car — with the original vehicle adding supply to the used market.

“But we’ve seen the opposite. New vehicle inventory is building as used vehicle inventory is still on the downturn.”

He said it takes at least two years for new cars to populate the used vehicle supply chain.

“Recovery stems from the new car market,” he said. “If you don’t have any new cars selling, you’re not going to have any used cars.”

Dubey, R. (2023, August 28). Used car market faces supply and Demand Crunch | Financial Post. Used car market faces supply crunch as inflation spurs drivers to search for cheaper wheels. https://financialpost.com/transportation/autos/used-cars-market-faces-supply-crunch

The used car market is still experiencing a shortage of vehicles even as the automotive sector recovers from supply chain woes that have plagued the industry since the onset of the COVID-19 pandemic.

Used vehicles became an alternative to consumers when the supply of new vehicles was severely limited during the pandemic, says Daniel Ross of automotive insights company Canadian Black Book, and prices for used cars started to rise.

“But after the increase of interest rates and inflation as a whole, affordability has become the main concern,” he says of the latest moves by the Bank of Canada to clamp down on rising costs. 

Ross, who is the senior manager of automotive industry insights at CBB, says that’s driving buyers toward smaller, used vehicles rather than previously popular SUVs, pickup trucks or new vehicles with higher market prices — a trend expected to continue for the next 12 to 18 months.

But there are not enough used cars in the market to meet the growing demand. DesRosiers Automotive Consultants Inc. says dealers are having a hard time getting used cars and projects a slowdown in sales in the coming months.

The latest estimates by DesRosiers show the 2023 sales of new cars at franchised used dealers are expected at 305 units per location, and at just 140 for independent used car dealers. That’s lower than the sales projections cited at the beginning of this year.

At least 51 per cent of the car dealers surveyed said their sourcing troubles for used vehicles have worsened since the pandemic, a report earlier this month by DesRosiers found.

The supply constraint is partly because people are holding on to their vehicles longer than usual, creating a bottleneck in the supply chain for used cars, says Jim Hamilton, interim manager at the Used Car Dealers Association of Ontario.

On average, he said, people look to sell their vehicles after four or five years of ownership and move on to newer make.

“Now, they’re hanging on to the cars double that time, which means more money in the service business — oil change, brake repairs and maintenance.”

A separate survey by DeRosiers shows that aftermarket retailers reported higher sales for automobile parts during the first quarter of 2023 — most of them having better sales compared to pre-pandemic levels.

June statistics for retail sales in Canada were driven by motor vehicles and parts dealers, which were up 2.5 per cent from May, much higher than the overall 0.1 per cent growth.

Ross of CBB is seeing those trends, too. He said people are buying out car leases before maturity, spending more on repairs and keeping them out of the used car lots.

Daily rental fleets are also following in the footsteps of regular buyers and holding on to the vehicles longer because they can’t replace the old fleet with the new ones. That means those cars aren’t entering the used market as expected

“This puts constraints on supply even further than what we’ve had in the past,” Ross said.

Between 2020 and 2021, used car prices soared 34.5 per cent as car manufacturers dealt with unprecedented backlogs in the supply of car parts to bring new vehicles to showrooms.

Now that the cost of used cars is stabilizing, people who may have been sitting on the fence in the last two years because of high prices are getting into the market.

Cindy Marques, a financial planner at Open Access Ltd., says she has noticed her clients are moving to buy cars only because they have to — lowering their expectations for new cars or opting for used to fit within their budget instead of delaying purchases.

“It’s not a matter of waiting for interest rates to go down but to bite the bullet and buy different cars than they hope they would get,” she said.

Limited financing options are also a factor in making the used car markets more attractive for buyers, said Ronald Corbett, vice-president for Toronto and southwestern province at Desjardins Ontario Credit Union.

With decreasing purchasing power and higher interest rates, Corbett said, qualification prospects for car loans are a little more difficult.

“People are more apt to be pinching every penny and not wanting to put that extra $40 or $60 a month toward any car purchase when they’re looking at prices for groceries, mortgage, rent and other costs,” he said.

Ross said the supply chain for some new cars has improved this year, with more cars now available at showrooms, alleviating some pressure from used car demand. Still, it remains sporadic.

“With the added effect of higher (market prices), the showrooms are not necessarily seeing as much gravity behind consumers coming to the new car market, as they previously have seen,” Ross said.

Years of limited access to new cars has shifted conditions.

Previously, Ross said, customers bought a new vehicle, then replaced it with another new car — with the original vehicle adding supply to the used market.

“But we’ve seen the opposite. New vehicle inventory is building as used vehicle inventory is still on the downturn.”

He said it takes at least two years for new cars to populate the used vehicle supply chain.

“Recovery stems from the new car market,” he said. “If you don’t have any new cars selling, you’re not going to have any used cars.”

Press, T. C., & Dubey, R. (2023, August 28). Used cars market faces supply crunch in aftermath of Supply Chain Woes. CTVNews. https://www.ctvnews.ca/autos/used-cars-market-faces-supply-crunch-in-aftermath-of-supply-chain-woes-1.6537882

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.