Kevin Bavelaar's Auto Showplace used car lot in Norh York, October 10, 2014.J.P. MOCZULSKI
The Great Recession has all but faded out of sight in the rear view mirror of the auto industry, but the effects of the downturn are still causing upheaval in Canada's used car market.
There's a shortage of used vehicles in the prime four- to seven-year old category that for much of the 2000s formed the bulk of the used car market. The shortage means prices in that segment have risen at the weekly auctions where dealers buy many of their used cars.
"In the past, we have sourced some vehicles from auctions, but with less supply it is competitive and pricing is getting unreasonable," said Keith Kalawsky, president of Castlegar Hyundai and Castlegar Kia in Castlegar, B.C. "At this point, we are sourcing most of our used from customer trade-ins."
The used car market generates barely any attention – it's not nearly as exciting as the unveiling of shiny new metal – but measured by number of vehicles sold, it's actually bigger than the new vehicle market.
Canadians bought about 2.8 million used vehicles last year, compared with a record 1.74 million new cars, trucks and crossovers, according to data compiled by DesRosiers Automotive Consultants Inc. The used vehicle total represented almost two-thirds of all vehicle sales.
The shortage of used cars is traced directly back to 2008-09 when auto makers all but halted leasing during the financial crisis.
The return of three-, four- and five-year-old leased cars to dealerships provided a major source of supply prior to the recession when leasing represented more than 40 per cent of new vehicle sales.
Leasing has recovered to the point where it amounted to about 17 per cent of the new vehicle market in the past 12 months, data prepared by auto consulting firm J.D. Power and Associates show.
"It's a real grind to buy cars right now," said Kevin Bavelaar, who owns Auto Showplace, a Toronto used car dealership.
Mr. Bavelaar said he is also buying fewer vehicles at used car auctions and sticking mainly with trade-ins, which has changed his business.
Before the recession, the ample supply of recent model-year used cars meant about 80 per cent of the vehicles on his lot were previously leased and so were in the range of four years old.
Now, 50 per cent of his investory is in that range and the other half is in the seven- to nine-year-old category.
That means he needs to spend more time and money sprucing up the older vehicles before he can sell them and he has to explain to buyers how vehicles have changed in the past decade.
"I get it all the time, 'Does this car not have Bluetooth? Does this car not have USB ports?' And I'm like, 'It's an '06, they didn't have that in '06,'" he said. "That is the driving force in everybody's life right now: what kind of technologies does this have. I don't mean technology in airbags and anti-lock brakes; [but] can I play music through my iPhone in this car?"
He noted that the prices on four- to seven-year-old vehicles have become so high that the profit margins for dealers are "so skinny that by the time you own it, there's no point in even owning it."
Mr. Kalawsky of Castelgar said he typically likes to have a minimum of two to three months supply of used cars on hand. At the moment, he has about a 30-day supply available.
"The good news is that most used vehicles tend to sell quickly," he said. "But we could use a bit more breathing room to expand this part of our business."
The scarcity of recent-year used vehicles is also having an effect on the new vehicle market, said industry analyst Dennis DesRosiers, president of the consulting firm that bears his name.
"We believe it's one of the fundamental reasons why so many people are buying new," he said, pointing to the record pace of new vehicle sales, which hit an even higher gear last month when the seasonally adjusted annual rate of vehicle sales in Canada hit 2 million for the first time.
The No. 2 reason for upgrading to a new vehicle is fuel economy, he noted, so it makes more sense for consumers to buy a new vehicle equipped with the most up-to-date fuel economy features and, at the same time, take advantage of hefty incentives and long-term loans that make monthly payments closer to what drivers would pay if they were leasing cars.
"It's almost a no-brainer for a consumer," he said.