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'Demand is there, supply isn't:' Used vehicles are getting more expensive in Canada

'Demand is there, supply isn't:' Used vehicles are getting more expensive in Canada

The price of a used vehicle is increasing in Canada as the coronavirus pandemic strains supply of pre-owned vehicles and demand continues to increase.

According to a survey of used car dealers conducted by Desrosiers Automotive Consultants, nearly 70 per cent of dealers reported that the price of a used vehicle increased in the month of July. Sales have also jumped, with nearly 40 per cent of used car dealers reporting an increase sales in July as demand returned.

Most used car dealerships were forced to close their doors to the public in mid-March due to the pandemic, as the government imposed lockdowns on non-essential businesses, which included car dealerships. But by July, Desrosiers said 48 per cent of used car dealerships had resumed operations and were operating regular hours. Another 47 per cent were operating reduced hours, and just five per cent were completely closed.

As demand returns, the price of used vehicles has also increased.

“With regard to used vehicle prices, the majority of dealers (68.6 per cent) saw price increases of varying degrees in July,” the Desrosiers report said.

“A shortage of vehicles traded in during the spring months has led to supply and demand mismatches in the market, pushing prices higher. This is also reflected in the vehicle sourcing patterns for dealers in July, with the great majority of dealers indicating challenges in sourcing some or all vehicles.”

Part of the supply issue is that car auctions – a critical source of pre-owned vehicles for dealers – were also forced to shutdown when the pandemic hit.

“Car auctions are critical. You could think of them as used car factories in a way,” said Brian Murphy, the vice president of research at Canadian Black Book. While most car auctions have resumed operations, many are still focusing on digital business. Murphy said there are often 250 people bidding online at car auctions. Before the pandemic that figure was typically at less than 50, he said.

Sales to the United States have also exacerbated the supply issue, Murphy added.

“Part of this is because of the phenomena of a lot of used vehicles are exported to the U.S market... that helps keep supply tight and actually keeps Canadian prices up,” he said.

Warren Bernard, the executive director of the Used Car Dealers Association of Ontario, said many dealerships are struggling to find popular vehicles to meet demand levels.

“The demand is there, but the supply isn’t,” he said in an interview.

“It’s been particularly difficult to get high-demand models such as pick-up trucks and SUVs... Some of the great deals that were there back in the spring just aren’t there anymore, and it’s unfortunately not an easy task now to find an affordable used vehicle.”

Bernard also believes that some of that demand is a result of people looking to purchase a vehicle for the first time.

“I think there were a lot of people that had not even considered buying a car that all of a sudden were in a position where they thought, ‘I think I need one’,” Bernard said.

“I think people are going to be reluctant to ride share and take public transit for some time. So demand for vehicles will be with us for some time among people that might not be using vehicles.”

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