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Used car prices set to rise, report says

Published November 8, 2012

Used car prices continue to move higher across Canada despite stronger-than-expected sales of new vehicles in 2012, a report by Scotiabank says.

The improvement reflects a 4 per cent increase in purchases of pre-owned models so far this year, as well as the dwindling supply of these vehicles.

Canadian used car prices have been rising since 2009 just before the start of the global economic recovery.

In contrast, new vehicle prices in Canada have been flat since 2010 as automakers have enhanced incentives over the past two years to spur sales.

More: Here are Canada’s best new cars

More: 7 must-do tasks after buying a used car

The net result is Canadian used car prices are at record highs relative to the price of new models, the report released Thursday said.

The supply shortfall is the direct result of a plunge in fleet and leasing volumes since 2008. New vehicle leases in Canada slumped to only 180,000 units in 2009 and while they have edged higher in recent years, lease volumes still remain 40 per cent below the average of the previous decade.

In addition, fleet purchases of new cars and light trucks have averaged less than 200,000 units annually since 2009 — nearly 100,000 units below the average of the previous 10 years.

Meanwhile, growth in global car sales stalled in September with volumes unchanged from a year ago.

The slowdown reflects a sharp falloff in sales of Japanese models in China due to a territorial dispute between Beijing and Tokyo over two uninhabited islands in the East China Sea and further deterioration in Western Europe, especially Spain.

Excluding these regions, purchases advanced a solid 6 per cent, year-over-year, driven by double-digit increases in North America and Russia.

More recent data for October indicate that U.S. passenger vehicle sales remained healthy despite the impact of Hurricane Sandy, which reduced overall volumes by an annualized 300,000 units.

U.S. purchases totalled an annualized 14.2 million units last month, in line with the year-to-date average. However, a sales acceleration is likely coming in months as U.S. consumer confidence is currently at the highest level since February 2008. The number of Americans planning to buy a new vehicle is also at the highest level since the tech bubble of the late 1990s.

In addition, replacement demand will be boosted by the significant number of vehicles that were damaged by flood waters from Hurricane Sandy.

New vehicle sales in Canada accelerated to an 8 per cent, year-over-year, increase last month, climbing to a record high for the month of October. Purchases jumped back above an annualized 1.70 million units for the first time since May.

The improvement reflects a further increase in incentives to clear out the 2012 models, as well as the introduction of popular new fuel-efficient vehicles. In particular, car sales advanced 16 per cent, year over year, last month, while truck purchases were largely flat.

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