Stakeholders’ perspectives on the year ahead
At the end of 2010, the used vehicle market was on a bit
of a rebound following a lackluster start to the year. According to the ADESA Canada Used Vehicle Price Index, used vehicle values
declined from October 2009 through to April 2010. While the Index did not completely make up that lost ground, it recovered almost 3.5 points from April’s low mark to the end
of October.
Robust retail demand for used
vehicles was a driving factor in the price strength. And it is also possible that demand from cross-border dealers contributed. We’ve noted interesting buying behaviour from U.S.- based dealers who, even with a relatively expensive Canadian dollar, have maintained a consistent presence within Canadian auctions since February 2010.
On the other hand, we haven’t seen the level of U.S. vehicles at the auctions that we’ve experienced in the past when the exchange rate was comparable to today. Demand for Canadian used vehicles, combined with limited American units hitting the auction lanes, has resulted in fairly robust price performance across most segments.
Prognosis for 2011
This could be a different story as we head into a new year. ALG Canada, the ADESA Index provider, has noted that we can expect some softening in the Canadian resale market early in the year as a result of several factors, including anticipated incentive levels in the new-vehicle market, the exchange rate, the general economic outlook and the supply of used vehicles.
In its analysis, ALG remarked that there will be exchange rate implications for both employment and the Canadian resale market in 2011. With the onset of Q4-07, when the Canadian dollar reached and exceeded parity with the U.S. dollar, the Canadian resale market has experienced supply volatility. Since then, the Canadian dollar has continued to strengthen and show resilience to the economic pressures that remain, globally. As the U.S. dollar continues to weaken amid yet another recently introduced stimulus package, the U.S. government is circling the wagons to combat EU pressures to dethrone the American dollar as the world’s primary trading and reserve currency.
The implication of a near-parity/parity Canadian dollar is that used-vehicle prices may weaken as vehicles are sourced stateside and domestic supply remains. While ALG expects some contraction in the used-vehicle supply this year, there won’t be much impact during the first half of the year, at least not in a manner sufficient enough to counter the effect of a near-parity Canadian dollar.
In closing, ALG noted that while Canada has fared better over the last 24-plus months than our neighbours to the south, slowing domestic growth and deflationary concerns with our largest trading partner, against the backdrop of Canadian consumers’ household debt reaching an all-time high and repeated warnings of a weakening real estate market mean the Canadian market should not expect much overall pick-up in resale prices.
Other points of view
In commenting on what he sees in the months ahead, Jeff Hartley, president of Foss National Leasing, says he expects to see a general stabilization of demand for both new and used vehicles. He identifies a strong Canadian dollar and fewer U.S. buyers in the Canadian market as key factors that will contribute to a leveling-off in used-vehicle prices that had risen markedly in the latter part of 2010. He did indicate that auction price performance has been strong for fleet vehicles and that he would expect the auctions to remain a key remarketing outlet, especially as dealers look to source inventory in a constrained supply environment.
When asked to provide some insight into the future of the fleet business, Hartley foresees a time when closed-end leases begin to account for a growing proportion of the corporate fleet market and having an effective remarketing strategy will be critical for the fleet management companies.
He points out that many of the experiments with new remarketing channels have not always delivered value for the fleet customer. Conversely, Foss customers maintain a high level of internal driver sales which, he notes, can easily be augmented with remarketing through the large wholesale auctions and building a following of buyers that know the product and create a market environment that is highly transparent.
Supply-side challenges are expected to be the focus of many participants in the used-vehicle market over the next couple of years. Jason Smith, vice president of operations at Go Auto, notes that his dealerships are preparing to address the constrained supply as fewer off-lease units hit the wholesale market in the near term – i.e. – the next 12 to 15 months.
Smith says that Go Auto has made progress utilizing an inventory management system that identifies core products that combine high gross and quick turn. Use of this system will expand as Go Auto augments the work of its existing wholesale buyers with a greater effort to perform effective trade-in valuations and bring in more units in this manner.
In addition to a greater reliance on trade acquisition, Smith sees dealers expanding sourcing operations into channels other than their traditional off-lease and off-rental markets, delving into the dealer consignment space to find those core vehicles that are needed to stock the dealerships. He likens this new approach to creating a “used-car factory” where the stock that dealers need to keep used-vehicle sales humming along is constantly being identified and acquired through the use of highly efficient systems and processes.
