Prices are down but activity remains high
About this time each year we typically stop to reflect on what has occurred in the auction business during the first half.
First, let’s take a look at prices in the overall market. If you have been watching the ADESA Canada Used Vehicle Price Index, you will have noted that prices have been under pressure since late 2009. The seasonally-adjusted index declined in each month from September 2009 through to April 2010, an aggregate decrease of 6.3 points.
This is a significant change compared to the same period last year. The strong demand that propelled the wholesale market through the first quarter of 2009 simply hasn’t been evident in the current year. New car sales have improved and this has led to a decline in the price that dealers are willing to pay for used vehicles since the retail demand has lessened somewhat.
According to ALG Canada, the seven-month slide halted in May, with the index climbing 0.5 points over April. Strength was seen in larger vehicles, with the minivan segment advancing slightly and the SUV and pickup segments experiencing greater strength. On the other hand, compact and mid-size units saw slight declines. However, both of these segments are higher than they were in December 2009, while the larger vehicle segments (SUVs and pickups) are all lower than their December 2009 levels.
Cross-border shopping
We have noticed some interesting things with respect to cross-border purchasing trends thus far in the year. Given the strength of the Canadian dollar, we might have expected to see an increase in the number of vehicles being purchased by Canadian dealers at auctions in the U.S. This has not been the case. The volume of such purchases with the Canadian dollar exchange rate at $0.98 U.S. in March and April was no higher than what we saw with the exchange rate at $0.87 U.S. in the spring of 2009, and certainly not at the levels we experienced in the spring of 2008 when purchases south of the border were significantly higher.
A somewhat surprising finding is that purchases by U.S. dealers at ADESA auctions in Canada have increased in recent months. We saw a spike in February and those levels held steady over the next couple months. This is in contrast to the spring of 2008 when the exchange rate was comparable, yet purchases by American dealers in the Canadian wholesale market were just a fraction of what we are experiencing currently. This can be attributed partially to the relative strength of the U.S. used-vehicle market compared to the Canadian market. Used-vehicle prices south of the border have been strong in 2010 and it seems likely that some American dealers are looking north to find specific units in a market with comparatively lesser demand.
Dealer interest still strong
Interestingly, dealer visits to ADESA.ca have not declined even though many in the market believe that used-car demand has declined. Average monthly visits to the website in 2009 increased by 22 percent over the prior year, and this higher level of activity has been maintained in early 2010. Dealer adoption of the Internet as a source for used-vehicle inventory has continued to expand. The average number of dealers using ADESA.ca on a monthly basis so far in 2010 has increased over the full-year 2009 average.
According to Roy Meech, director of dealer sales for ADESA, dealer usage of auctions to remarket vehicles has also been increasing over the past year. “Dealers are telling us that they need to find ways to maximize the dollars that they receive for their assets and the auctions have been working diligently to put the right services in place,” says Meech. He notes, “For the first five months of the year dealer consignment is up significantly over the same period last year and it can continue to grow as long as the auctions can deliver what the dealers need to be successful.”
Online buyers are accounting for a greater proportion of the dealer consignment units sold at the physical auctions as well. This is not surprising given that purchasing dealers have embraced the various web-based services for sourcing their inventory from the commercial sellers and are now very comfortable using those same tools to purchase dealer inventory from the auctions online.
Meech points to the value of the Internet for helping to make the case for dealers using the auctions to sell more of their aged inventory, trades and other units. “Dealers across the country are now discovering what the manufacturers and other commercial customers have known for several years – that the web allows units to be seen from coast-to-coast and often brings additional bidders into the arena, which can certainly drive prices higher for the seller once the bidding gets competitive.”
There are certainly some things here to consider as you plan for your business in the latter half of 2010.
