Used cars fetching top dollar, study finds

Scotiabank’s Global Auto Report says a sharp decline in leasing and fleet activity is lowering the number of autos entering the used-car market, keeping prices elevated, likely for years to come.

Carlos Gomes, the author of the report, said the credit crunch of 2008 left a lasting impact on the leasing market, when financing companies found themselves having to sell returned vehicles at a loss.

Where leasing once accounted for about 40 per cent of dealer activity, that number fell to single digits during the credit crisis and has since edged back to the high teens.

But now, Gomes said, “auto financing companies are reluctant to push it as hard as before, not wanting to find themselves as vulnerable to losses.”

The number of leased new vehicles has slumped to 250,000 units a year over the past two years, 60 per cent below the average of the past 10 years, the report said.

Fleet sales were also hurt by the financial crisis, as the plunge in business confidence resulted in a dramatic drop in auto purchases, Gomes said.

Now, fleet sales have dropped to 200,000 annually since 2008, nearly 100,000 units below the average of the past decade.

“These sharp supply reductions are leading to a significant decline in the number of pre-owned vehicles coming back onto the Canadian used vehicle market. In fact, the reduced supply of pre-owned models will be a multi-year development, and should support higher used car prices in Canada for an extended period,” Gomes said.

For individuals selling their used cars, that has translated into prices 7.4 per cent higher in September than a year ago, according to Scotiabank’s Used Car Price Index.

Owners of vehicles three to four years old will be the happiest, with three year-old models selling for nine per cent more than they did a year ago, and four-year-old models selling 10 per cent higher.

Owners of one-year-old models won’t cash in on the trend just yet, as prices for such cars have been undercut by enhanced dealer incentives for new models, Gomes said.

“However, prices for new and nearly new pre-owned vehicles are expected to edge up once the industry clears out it 2011 models, and scales back incentives with the arrival of 2012 model-year vehicles.”