Used-Vehicle Market: American Invasion


Used Vehicle Exports Buoyed by Low Canadian Dollar
(Photo: Statistics Canada)

A weak Canadian dollar is sending our inventory south.

The performance of our Canadian currency against its U.S. equivalent is having quite an effect on our used-vehicle market. With our dollar sitting below 80 cents against the American dollar, our pre-owned vehicles can be quite a bargain for buyers south of the border.

We saw so much commentary on an increase in U.S. buyers coming to Canada that we purchased data from Statistics Canada to determine exactly what was going on. While the new-car market is generally up by 2 to 3 percent this year, the used-vehicle side is posting double-digit gains overall. That’s the best performance we’ve seen in nearly a decade, with the advance accelerating to more than 20 percent year-over-year in recent months.

The news was even better in Quebec and British Columbia, where numbers over the summer rose to more than 30 percent. We estimate that for all of 2015, Canadian purchases of pre-owned models will exceed the previous record of 3 million units that was set in 2011.

Rising exports

With our low dollar providing so much buying power for Americans, the rise in the number of cars heading south has been staggering. In 2012, we saw about 8,000 to 9,000 used vehicles make the journey over the border. Last year, it climbed to 15,600 vehicles, and from January to August this year, it rose to 23,000 vehicles.

We saw our exports double when our dollar was just 10 cents lower than the American dollar, but in July and August 2015 in particular, when our dollar approached a low of 76 cents against the U.S. dollar, year-over-year growth of Canadian used vehicles going to the U.S. rose by an incredible 155 percent.

All of this is particularly interesting because we’d initially seen used-car prices soften about a year ago. This was primarily because of a modest rise in the number of vehicles that were coming off-lease, which make up the majority of the pre-owned supply. But that didn’t last long, and the market was overwhelmed both by the U.S. buyers and by Canadian consumers.

Affordability of vehicle prices to household income is close to a record high right now, and based on an average used-vehicle transaction of $13,400 so far this year, our calculations suggest that it takes 8.1 weeks of employment for a typical Canadian household to purchase a used vehicle. That’s down from the 9.5 weeks we’ve typically been seeing over the last decade, and even more from the 13 weeks that we saw at the turn of the millennium.

Africa, the Middle East and beyond

Interestingly, it isn’t just Americans who buy the cars we turn in. Excluding pickup trucks, Canada is on target to send close to 100,000 vehicles to other countries, which is up considerably from an average of the 69,000 we’ve sent each year since 2010. Most of these go to Africa and the Middle East, and until this recent surge in American sales, the largest market for Canadian pre-owned vehicles was Nigeria.

As for vehicles going to the U.S., most of them originate in Ontario, and more than 80 percent of all used vehicles going south do so through the Ontario border. This is probably because of the number of major U.S. cities that are close to Ontario, but the amount of vehicles leaving through Ontario represents nearly 2.5 times the province’s share of the Canadian vehicle fleet overall. British Columbia is the second-largest source of vehicles to the U.S., even though its fleet is smaller than that of Quebec or the Prairies.

Impact of leasing

Overall, the modest uptick in the pre-owned vehicle supply has much to do with historical trends. Used vehicles come primarily from leasing, and prior to the global financial crisis, leasing was around 40 percent of the market. But leasing virtually disappeared from the market between 2009 and 2011, and when it did return, it only accounted for about 15 percent.

Still, that rise did eventually bring more vehicles onto pre-owned lots than we were seeing before, and we expected to see prices weaken simply because there were more used cars to go around. Everything changed, of course, with that additional domestic affordability, and our dollar’s relationship to its U.S. counterpart.

It’s still difficult for consumers to get a used vehicle, especially with the competition we’re seeing from the south. Dealers are going to find that used vehicles will probably continue to be a relatively important part of their business overall, especially since the stronger U.S. dollar will likely bring price increases into the new-car side and send some buyers over to the pre-owned lot.

When we look at the Canadian new-vehicle market this year, we see that the industry has done a good job in providing leasing incentives, and that side of the business is seeing a sharp increase. From the 15 percent of the market that we’ve been recently seeing, leasing has risen close to 20 percent this year. The market is better than we thought it would be, and from our original estimate of 1.855 million for 2015, we now expect to see 1.87 million by the end of the year.

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