The average price of used cars is starting to fall

(Montréal) Used car prices are showing signs of slowing down after two years of significant price increases, driven in particular by the shortage of new vehicles.

Posted at 2:14 p.m

Pierre Saint Arnaud
The Canadian Press

August data from the car sales page autotrader report for the first time in 18 months a very slight fall in the price of used cars, which is also followed by an increase in inventories.

Admittedly, the drop is minimal, 0.4% between June and July, but it’s part of a movement that started earlier, according to Benoit Béland, director of brand marketing at autotrader.

“It seems to be a trend because if you look at the last three months the rate of increase has slowed and that’s where we have stabilization. We agree that a 0.4% decline is rather neutral.

“But it’s a trend, because if we link it to the used car inventory, again for almost all models, we see it stabilizing there too,” he explains.

Sudden increases

He adds that although the figures for the month of August have not yet been compiled, the decline in the average price of used vehicles and the increase in inventories over the last month have been maintained and even amplified from week to week, which tends to confirm that the downward trend is good established.

It has to be said that the increases over the last few months have been brutal. Across Canada, the median price of a used car was $37,928, up 32% year-on-year. In Quebec, the increase over the past 12 months has been even worse, reaching 39.2%, but at an average price that is still below the Canadian average at $35,186.

Most of these increases are due to the decline in new car inventories during the pandemic. Disruptions in supply chains, particularly on the microchip side, have caused supply to collapse, leading consumers to turn to used vehicles. But here, too, the pressure is easing and production is tending towards full capacity.

Lots of preorders to go

However, Benoit Béland warns that it will take longer to ease the pressure on new car prices.

“The problem is that there were a lot of pre-orders. There was no inventory, but people still bought and were willing to wait. It will take a few months for this demand to be exhausted. »

The average price of a new car has also increased, but less than that of a used car, ie by a little less than 20% between July 2021 and July 2022 to $55,469 in Canada and $51,122 in Quebec.

Discounts set aside

Mr Béland’s explanation of the reasons for the rise in new car prices is very revealing of market practices.

“Prices have risen because manufacturers have done almost no discounting as they have done in the past to clear inventory as the little stock available has sold out. »

In other words, it is not so much the cost of the car that has increased, although there is some increase year after year, but the discounts that have been taken away. The data fromautotrader reflect this phenomenon as they are compiled from the retailer displayed price.

“The dealer shows the lowest price he can offer to beat the competitor. These are prices that include discounts,” explains Mr. Béland.

And as with used cars, we are observing that the stock of new vehicles, which has been steadily declining since the first quarter of 2021, is stabilizing, although it has not yet started to increase, except for trucks. That means once pre-orders are filled and the resumption of production allows new vehicle stocks to increase, we can expect dealers to start offering discounts again to sell the new stock.

Inflation will continue

On the other hand, Mr Béland warns, prices will not return to pre-pandemic levels.

“Once prices go up, it’s extremely rare in any area for them to go back to normal. Also, all of us as consumers are currently seeing a global labor shortage, high inflation due to oil and other food prices affecting production costs. »

But for used cars, whose intrinsic value hasn’t increased but whose price has exploded in line with demand, won’t we see a return to pre-pandemic prices? No, he replies, “because the majority of used car sales are made through dealers, and the proportion of sales by private individuals is marginal. And dealerships have operating costs, vehicle repair costs, labor costs, and all of those costs are going up. »

The Quebec Difference

every timeautotrader publishes its data, we find that the average price in Quebec for both used and new vehicles is well below the Canadian average and lower than that of all other Canadian provinces, with the exception of the Atlantic provinces.

“It’s always been like this and it depends on the type of vehicle you buy and what type of vehicle is available. We like luxury cars and big trucks less in Quebec if we compare them with British Columbia or Alberta, for example, which have very high sales of the famous “pickups“(Van),” explains Benoit Béland.

“We in Quebec have a smaller car and fewer luxuries. Yes, we’re SUVs just like the rest of Canada, but other than that, our tastes and ways of consuming vehicles are different. We buy fewer BMWs, Volvos and especially the famous “pickups‘ which, as he points out, have a very significant impact on the average price in a province due to their much higher cost.

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