Automotive News Canada - January 2022 - 12

12
* JANUARY 2022
Used-car prices: Expect a dip, not a dive
The Canadian market is
likely to stay strong until
2025, which could soften
a predicted correction
By KRISTINA URQUHART
T ORONTO CORRESPONDENT
A PREDICTED PLUNGE IN USEDvehicle
prices in the United States might
be more gradual in Canada and lead to
fewer negative-equity minefields north of
the border, industry experts say.
A December report by the accounting
firm KPMG estimated that supply and
demand for vehicles in the U.S. would
equalize by the end of this year or early
2023 as the supply chain
continues to loosen,
leading to increased
new-vehicle production.
In the United States,
used-vehicle prices have
skyrocketed 42 per cent
over pre-pandemic levels
and will plummet by
as much as 20 per cent to
30 per cent even before
new-car inventory has
been fully replenished,
resulting in increased
negative equity, according
to KPMG.
But Canada can
expect a slower shift to
a balanced market, said
Rebekah Young, director
of fiscal and provinnitely
don't see this correction [where] the
floor is going to fall out. "
VALUE UPS MORE $5,000 FROM A YEAR AGO
Prices for used vehicles have increased
about 30 per cent since May 2020, with the
average price currently about $28,500, said
Brian Murphy,
managing director
of Kelley
Blue Book and
Data Solutions at
Cox Automotive
Canada. That's up
F&I
SPOTLIGHT
more than $5,000 from December 2020.
Murphy predicted that pricing would
remain strong because the disruptions in
new-vehicle production over the past two
years could take another 24 months to fully
resolve in light of the ongoing shortage
of raw materials and further supply constraints
caused by the Omicron variant of
COVID-19.
Murphy: Used
pricing will
remain strong
because
disruptions in
new-vehicle
production
could take
another 24
months to
resolve.
FILE PHOTO
cial economics at Scotiabank Economics.
" Even if there's a little bit of a drop [in
used-car prices], there's still going to be
very elevated prices, " she said. " We defi " For
those four model years, you'll forever
have fewer cars built, " he said.
That will result in a used-car shortage
through 2024 or 2025, said James Hancock,
director of OEM strategy and analytics at
Canadian Black Book, which in November
logged a record year-over-year increase of
37.8 per cent in used-vehicle values.
" We expect prices to be above pre-pandemic
levels until 2025, " Hancock said.
When prices do fall, said Scotiabank's
Young, consumers might be more likely to
weather the change in their vehicle's value
and ride out a negative-equity scenario,
because the average Canadian household
is wealthier than it was at the beginning of
the pandemic. It's a trend that Young said
is " unheard of " in an economic downturn.
More money in pockets has dropped
delinquency rates and improved consumer
credit quality. " Overall, those metrics
provide more resilience against these types
of shocks, " Young said, " even if negative
equity does grow as a result of shifts in
retention values. "
CASH IS KING?
Increased personal wealth has translated
into an uptick in cash deals at UpAuto, a
three-store group based in Stratford, Ont.,
about 150 kilometres west of Toronto; and
at Cargo, UpAuto's used-vehicle outpost,
which opened in March 2020.
UpAuto CEO Michael Carmichael said
that while some buyers are dipping into
their savings, he is concerned about a
growing number who are drawing against
a home equity line of credit (HELOC) to
pay for their new and used cars.
UpAuto's and Cargo's finance and insurance
managers discourage this. In part,
that's because of the lack of purchase protection
options - such as GAP, walkaway,
credit life or disability insurance - that
could help if buyers find themselves owing
more than the vehicle is worth.
" They're better to [get a loan] through
the bank. Rates are still
pretty low there, " said
Carmichael. " That's a
pretty consistent dialogue
we have with customers. "
GAP insurance is available
for both new- and
used-vehicle financing
and covers the difference
between what's owed on
a loan versus the auto's
value in the event of a
total loss. It's one way to
avoid negative equity if
prices dip, Carmichael
said.
Hancock:
Used vehicles
will be in
short supply
through 2024
or possibly
2025.
FILE PHOTO
A consumer whose
car has dropped in value could also reduce
negative equity by asking to refinance at
a lower rate or by trading it in for a leased
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vehicle, adding the negative equity onto a
new financing arrangement.
NO SIGNS OF STOPPING
Carmichael advises consumers to keep
their vehicle purchases for six to eight
years in the current climate, as long as the
cars are safe and the maintenance
cost isn't greater
than the market value or
replacement value.
" The longer someone
owns a vehicle, the purchase
premium as a percentage
of the vehicle's
market value becomes
less material, " he said.
Even if values remain
elevated, dealers who
have been pinched by
high prices and limited
stock will see more opportunity
to strengthen their
offerings in the used market
once they are able
to source more vehicles,
said Murphy of Kelley
Blue Book. " They've
adapted their pricing and
their buying strategies, "
Carmichael:
People
should hang
on to their
vehicle
purchases for
six to eight
years, as long
is it makes
financial
sense to
do so.
SUPPLIED
PHOTO
he said. " I'm convinced that they could
keep up with those [market] fluctuations. "
Despite speculation that the Bank of
Canada will raise interest rates this quarter
to quell inflation, the market shows no
signs of slowing down, said Young. Wouldbe
buyers who are waiting for prices to dip
and supply to normalize might be contributing
to pent-up demand, she said.
" There will be people [who buy] when
the dust settles, and their car will drop in
value, " Carmichael said. " However, that's
normal. Cars should drop in value. They
are depreciating assets. This is not Toronto
real estate. " - ANC
Accord's flaws merit touch-ups,
not a total repainting, tribunal rules
By ERIC FREEDMAN
LEGAL CORRESPONDENT
Joe Verde
Sean Gardner
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A CUSTOMER WHO
received his new 2020 Accord
Hybrid with scratches and a
paint blemish isn't entitled
to $4,256 to repaint the vehicle,
the British Columbia Civil
Resolution Tribunal has held.
Siding with Pacific Honda in
North Vancouver, the decision
said the minor cosmetic problems
could be covered
by the warranty without
totally repainting.
Buyer Hassan Wali
admitted that he didn't
inspect the car when he
picked it up at the dealership
and claimed he
didn't discover it was " full of
scratches " until he got it home,
the Dec. 17 decision said.
The store acknowledged
the blemish on the hood and
scratches on the trunk and door
moulding, but Wali declined
the offer to repaint the hood
and trunk and replace the door
moulding.
Tribunal member Kristin
Gardner ruled that Pacific
Honda's offer was appropriate
to remedy the problem and
said evidence was insufficient
to conclude that the swirls
on the vehicle constituted a
paint defect that would justify
repainting the whole vehicle.
In addition, Wali didn't provide
proof, such as an estimate, to
support his demand for repainting,
Gardner said.
FORMER STAFF MEMBERS
AWARDED BACK PAY
TWO 61-YEAR-OLD
employees who were terminated
without cause by a Mississauga
dealership are entitled to lost
pay, but not as much as they
wanted, a judge on the Ontario
Superior Court of
Justice has ruled.
On Nov. 16, Judge
Sean Dunphy ruled
that Trent Flack, a former
finance manager
at Whiteoak FordLincoln,
was entitled to
two months' reasonable notice,
not the eight months he sought.
The store terminated him from
the $156,000-a-year position in
January 2020 after nine months
on the job.
In a separate case decided the
same day, Dunphy said former
salesman Michael Ewach, who
was discharged in December
2019, was entitled to two-andhalf
months' reasonable notice,
not the 10 months his suit
sought. He had worked at the
dealership for 19½ months,
earning about $60,000 a year,
plus benefits and a vehicle
allowance. - ANC
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Automotive News Canada - January 2022

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