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Demand for pre-owned vehicles is driving prices to historic highs

It’s good news if you have a car you don’t need.

By Perry Lefko Wheels.ca

Jan 16, 2022 5 min. read

Article was updated a year ago

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If you are the owner of a used car and looking to sell it, there’s never been a better time to do it because there’s a shortage of them on the market.

James Hancock, director of OEM strategy and analytics at Canadian Black Book, which values new and used vehicles, said a four-year-old used vehicle with about 100,000 kilometres would normally be worth about 40 to 50 per cent of its original sticker price, taking into account depreciation.

But in the current climate, with a shortage of supply because of manufacturing issues caused by a shortage of semiconductor chips, a similar car could be worth 85 per cent of its original sale price.

“This is kind of a historical thing that I haven’t experienced in the past of doing this research,” said Hancock, who has been in the automotive business for 15 years. “Across the board all segment prices of used cars have increased. Insofar as the gap between a used car and a new car, the depreciation seen in the past has definitely seemed to have really shrunk.”

Hancock said the used car prices began to increase in October 2020, when the new car supply was initially affected by the semiconductor shortage. But he said it really started to soar in the fall of 2021.

Andrew King, managing partner of DesRosiers Automotive Consultants, said used car prices have risen because people can’t necessarily get the new car they want and are opting to buy a used car instead.

“It’s because of the chip shortage and a big flow of used cars has gone to the U.S. because they are scrambling to get cars, too,” King said. “With the Canadian dollar being low the last few years, there’s been big volumes going to the U.S. – around 300,000 units a year. That’s pretty much driven by the U.S. exchange rate. They can literally pay full retail prices on our product and sell it there and still make money. It’s a big part of the market.

“When the Canadian dollar was at par in 2008, there was actually cars flowing the other way, about 150,000 units a year.”

Hancock said the new vehicle inventory in the U.S. is down about 67 per cent, which has increased the American interest. “Their supply has been hurt more than us,” Hancock said. “They are definitely looking for more cars because our cars are very similar in spec and are easy to export into the U.S. We’ve seen known exporters being very aggressive at the auction channels and buying up as many cars as they can to take them down to the States because the price differential is so significant right now.”

He said it is easy to trace the American purchasers because of data that tracks the vehicle identification numbers (VIN) and shows where cars purchased in Canada are eventually listed for purchase.

Robert Stein, president of Plaza Auto Group, which has six locations in Ontario, said this is a unique time in the automotive industry because the used car market has become so prominent.

“We’ve never had that before,” he said. “When new cars aren’t selling the volume (dealerships) are used to, you are going to have less volume of trades. This situation has definitely impacted the used car market, without a doubt.”

Greg Carrasco, vice-president of operations and general manager of Oakville Nissan and Oakville Infiniti, said the situation with the used car market is crazy. “In every commodity, the price of the goods reflects the intensity of the demand,” he said. “It’s not that the demand has increased because there is no more demand for cars. You still have the same number of people buying those cars. We just have the same number of people to buy the cars for which there is no production. So now those people are fighting for those vehicles.”

Jim Matthews, whose company LeaseBusters has been helping individuals to break their leases since 1990 for a fee of $300, said his business has traditionally operated for customers (Torstar, the parent company of the Toronto Star, owns an interest in LeaseBusters). But he said with the used car shortage it has now become a market influenced by dealers and private buyers.

Used Vehicles

“I’ve never seen anything like it, and it’ll probably stay in place until the beginning of (the third quarter of the year) in 2022 based on everything I’ve read,” Matthews said. “In regular times, dealers refer (people with leases) to us. Now dealers and private buyers are competing for our private-seller deals. We’re getting crushed in a bad way.

“We would normally list three times as many vehicles, but we’re not getting those opportunities because the dealers are buying them out from the customer or the leasing company before we’re even seeing those people.”

Matthews said his company is trying to educate consumers to list with LeaseBusters to attract a wider number of offers and avoid losing out on thousands of dollars if the vehicle is sold back to the dealer without exploring the broader marketplace. He said it is comparable to the hot housing market in which the price listed to sell the property will likely be pushed significantly higher because of multiple offers to buy it.

“The smart dealer will pay for the vehicle and make it seem like they are doing the customer a great favour, which they are, but it’s no different than real estate,” Matthews said. “If you’re asking $1.2 million for your house and somebody offers $1.2 million, do you think the Realtor is going to take that? They will say, ‘thank you for your offer, we’ll get back to you’ and keep accepting bids. That’s what we are trying to relay to the customer looking to get out of their lease.”

He said dealers are paying huge for late-model used cars – generally ones that have been driven only between 7,500 and 30,000 kilometres – and, in turn, finding buyers because there is a significant portion of the market that needs a vehicle right now.

“That market includes all those people who just wrote off their vehicle at a total loss – be it accident, theft, whatever the case may be – and are in a position where they weren’t planning to buy a car and need something right away,” Matthews said. “And there’s other people whose cars cannot be repaired and those people who are just getting out of their lease and go to their local dealers for a replacement and are told to get in line. That’s what’s driving prices up big time.”

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