Joe Tarin of Corsa Auto Repair and Sales surveys his downtown Toronto lot with a stoic smile. 
 
To pedestrians shuffling by, the used car dealership likely appears plenty full, with coupes and sedans parked bumper to bumper. But in fact, Tarin says his inventory is down as much as 35 per cent compared to pre-pandemic levels.

“After the pandemic, it’s extremely hard [to find used vehicles] and the prices have gone up extremely,” he noted. “So when we’re retailing it, the price is obviously going to be a bit higher.”

With inflation in Canada rising at the fastest pace in 18 years in October, virtually everything consumers buy has become more expensive. But amid a crippling microchip shortage and corresponding reduction in new car production, price hikes in the used vehicle market have been very severe. 
 
According to AutoTrader.ca, the country’s largest online marketplace for pre-owned cars, the average list price of a used vehicle surged 27 per cent year-over-year in November to $31,875. Previously, the mean price of a used car had never surpassed $30,000. Inventory, meantime, dropped 17 per cent. 

“One of the things that’s always been true about cars is that you buy a car and it’s worth less as soon as it leaves the lot,” said Flavio Volpe, president of the Automotive Parts Manufacturers Association. “This past year, the average value of used cars has gone up. It’s never happened before. It defies all economic modelling.”

Volpe said new car production was the “first domino” to fall during the pandemic. Without the semiconductors necessary to complete their vehicles, automakers were forced to slash output and park their unfinished inventory in sprawling lots. The issue then spread to auto parts suppliers, rental service companies and used car dealers, which rely on a steady flow of new cars and trucks. 

“Dealership groups usually have about 60, 70 days of inventory on hand,” Volpe noted. “They’re down to a week or two weeks in some cases. It’s really unprecedented.”

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Used cars for sale are seen at an unspecified dealership – Bloomberg News

 

NEW GUARD, OLD GUARD

Experts also note the impact of the supply chain crunch on used car dealers has been uneven. Whereas more traditional retailers saw their inventory dwindle as the microchip shortage took hold, online used-vehicle sellers have managed to buck the trend. 

Clutch Canada Inc., for example, saw its inventory balloon over the course of the pandemic. 

The online buyer and seller of used cars had just 89 vehicles in its inventory at the end of the first quarter of 2020. Today, they boast 1,250 used cars and trucks.

“We’re a technology company at heart,” said Dan Park, chief executive officer of Clutch. “So our secret sauce is the software engineers, the data scientists and the analysts that we have that buy inventory every day.”

Park said that unlike traditional used car dealers, which rely heavily on trade-ins to replenish their stock, his team taps auctions, wholesales and private sales.

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Stephen Seibel (right) and Dan Park, Clutch CEO, pose for a portrait in an undated photo

Still, Park noted it has become harder to source used vehicles, particularly given rental services’ depleted fleets. And as a result, prices for Clutch and its buyers have climbed.

On average, he said prices for vehicles selling on the online platform are up 16 per cent compared to the start of the pandemic. 

 

PRICE PRESSURE WON’T LET UP SOON

Experts say it will likely take at least two more quarters before car production returns to pre-pandemic levels and the auto ecosystem normalizes. But even then, there may be ongoing price pain for consumers. 

 According to Ian MacDonald, the chief marketing officer at AutoTrader.ca, carmakers may be learning the value of production discipline, and re-evaluate their inventory models.

“Maybe [automakers] will have less of an appetite to build up that inventory,” he said. “Because when demand is constant or even high… and the supply is constrained, many [carmakers] have realized that they don’t need to be quite as generous with incentives and things like that. There’s a higher margin for them.”

 

 

 

Ellis, P. (2021, December 6). Chip shortage, supply chain issues give used car prices rare boost – BNN Bloomberg. BNN. Retrieved December 7, 2021, from https://www.bnnbloomberg.ca/chip-shortage-supply-chain-issues-give-used-car-prices-rare-boost-1.1691701.

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