Used cars market faces supply crunch in aftermath of supply chain woes
TORONTO –
The used automobile market continues to be experiencing a scarcity of automobiles even because the automotive sector recovers from provide chain woes which have plagued the trade because the onset of the COVID-19 pandemic.
Used automobiles turned an alternative choice to customers when the provision of recent automobiles was severely restricted in the course of the pandemic, says Daniel Ross of automotive insights firm Canadian Black Book, and costs for used automobiles began to rise.
“But after the increase of interest rates and inflation as a whole, affordability has become the main concern,” he says of the most recent strikes by the Bank of Canada to clamp down on rising prices.
Ross, who’s the senior supervisor of automotive trade insights at CBB, says that is driving patrons towards smaller, used automobiles moderately than beforehand in style SUVs, pickup vehicles or new automobiles with larger market costs — a pattern anticipated to proceed for the subsequent 12 to 18 months.
But there aren’t sufficient used automobiles available in the market to satisfy the rising demand. DesRosiers Automotive Consultants Inc. says sellers are having a tough time getting used automobiles and initiatives a slowdown in gross sales within the coming months.
The newest estimates by DesRosiers present the 2023 gross sales of recent automobiles at franchised used sellers are anticipated at 305 models per location, and at simply 140 for unbiased used automobile sellers. That’s decrease than the gross sales projections cited initially of this 12 months.
At least 51 per cent of the automobile sellers surveyed mentioned their sourcing troubles for used automobiles have worsened because the pandemic, a report earlier this month by DesRosiers discovered.
The provide constraint is partly as a result of individuals are holding on to their automobiles longer than ordinary, making a bottleneck within the provide chain for used automobiles, says Jim Hamilton, interim supervisor on the Used Car Dealers Association of Ontario.
On common, he mentioned, individuals look to promote their automobiles after 4 or 5 years of possession and transfer 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 reveals that aftermarket retailers reported larger gross sales for car components in the course of the first quarter of 2023 — most of them having higher gross sales in comparison with pre-pandemic ranges.
June statistics for retail gross sales in Canada had been pushed by motor automobiles and components sellers, which had been up 2.5 per cent from May, a lot larger than the general 0.1 per cent development.
Ross of CBB is seeing these developments, too. He mentioned individuals are shopping for out automobile leases earlier than maturity, spending extra on repairs and protecting them out of the used automobile heaps.
Daily rental fleets are additionally following within the footsteps of standard patrons and holding on to the automobiles longer as a result of they cannot exchange the outdated fleet with the brand new ones. That means these automobiles aren’t coming into the used market as anticipated
“This puts constraints on supply even further than what we’ve had in the past,” Ross mentioned.
Between 2020 and 2021, used automobile costs soared 34.5 per cent as automobile producers handled unprecedented backlogs within the provide of automobile components to convey new automobiles to showrooms.
Now that the price of used automobiles is stabilizing, individuals who could have been sitting on the fence within the final two years due to excessive costs are stepping into the market.
Cindy Marques, a monetary planner at Open Access Ltd., says she has observed her purchasers are shifting to purchase automobiles solely as a result of they must — decreasing their expectations for brand new automobiles or choosing used to suit inside their funds as a substitute 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 mentioned.
Limited financing choices are additionally a consider making the used automobile markets extra enticing for patrons, mentioned Ronald Corbett, vice-president for Toronto and southwestern province at Desjardins Ontario Credit Union.
With lowering buying energy and better rates of interest, Corbett mentioned, qualification prospects for automobile loans are slightly tougher.
“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 mentioned.
Ross mentioned the provision chain for some new automobiles has improved this 12 months, with extra automobiles now obtainable at showrooms, assuaging some strain from used automobile demand. Still, it stays 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 mentioned.
Years of restricted entry to new automobiles has shifted circumstances.
Previously, Ross mentioned, prospects purchased a brand new automobile, then changed it with one other new automobile — with the unique automobile including provide 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 mentioned it takes not less than two years for brand new automobiles to populate the used automobile provide chain.
“Recovery stems from the new car market,” he mentioned. “If you don’t have any new cars selling, you’re not going to have any used cars.”
This report by The Canadian Press was first revealed Aug. 28, 2023.
