Buyers dig deep as car production hits roadblock

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With cars in tight supply, George Epitropou says inventory at all six of his dealerships in the Greater Toronto Area has started to run low. This month, close to a third of new vehicle orders aren’t filled, he said, with supply issues set to get “even worse in August.”

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While many buyers are settling for their second or third choice, depending on what’s available on the sales lot, the waitlist at each of Epitropou’s dealerships, for Mazda, Hyundai and Kia, is averaging anywhere between ten to 20 people, he said.

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Buyers dig deep as car production hits roadblock Back to video

“Everything is selling,” he noted. “As soon as a (higher priced) trim is gone, all of a sudden the demand goes to the next trim down.” While lower trims are usually slower to sell, they’re also currently in high demand, Epitropou added.

Discounts have reduced by as much as a half because customers aren’t asking for them, he said, adding that “It’s pretty much market-wide right now.” “They’re not negotiating, or can’t, like they used to.”

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Dealers at this time may “not have to negotiate at all,” said Srini Rajagopalan, managing director of East Coast and Canada with J.D. Power. “People are able to afford these higher prices and there just aren’t enough vehicles.”

According to J.D. Power data, industry incentive spending dropped below $4,000 ($3,940) for the first time on record. By comparison, the average incentive spend per vehicle was $6,108 last May and $5,270 in May 2019.

While sales are reportedly down about 12 per cent from 2019, the number of days a vehicle stays on the market has also sharply declined, according to J.D. Power. Cars stayed on the lot for around 56 days this May, a “drastic” reduction from 114 days in May 2020 and about 70 back in May of 2019, it found.

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A global shortage of microprocessors in recent months, combined with pent-up consumer demand, is forcing those looking to buy a car to search farther or dig deeper.

One of his best deals for a small used SUV, such as a year old Mazda CX-3 GS with 20,000 km on the clock, would cost about $20,000 today, compared to $17,000 in 2019, Epitropou said. Across the board, the price of used cars is up 25 per cent compared to last year and 15 per cent higher than in 2019, said James Hancock, director of business development for Canadian Black Book, a used car research company.

In the U.S., a study found at least 16 high-demand used models are selling for more than new ones. The Toyota Rav4 Hybrid, for example , is being sold used at US $36,352, or 3.9 per cent higher than new. A new Tacoma, the study found, sells for $37,902, while a used one costs $39,857, or 5.2 per cent more. Meanwhile, a used Kia Telluride cost $47,730, which is $3,564, or 8 per cent, above new.

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Dealers and experts said fewer cars are being traded in due to lower depreciation and the lack of new cars available.

There just aren't enough vehicles

Used cars from Canada are also fetching higher profits in the U.S., further contributing to the shortfall. As new car inventory in the U.S. has shrunk by 50 per cent, used cars there are going for 35 to 45 per cent more this year, Hancock said.

According to Canadian Black Book data, the number of vehicles exported to the U.S. from Canada increased 4.3 percent to 309,505, from 2019 to 2020. For comparison, 151,952 vehicles were exported to the United States from January to May of 2021 alone.

In the last two years, it’s been more beneficial for sellers to export cars to the U.S., estimated Nick Sgro, a Nissan dealer and Vice President of YNG Group, attributing it to “favourable” conversion rates and supply level “cycles.” He speculated that at this time a single car from Canada goes for the same as “wholesale rates” in the U.S.

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A J.D. Power study earlier this year found that a number of Canadian vehicles end up being shipped to the U.S., including 25 percent of all mainstream pickups sold, 10 to 25 percent of popular small and mid-size cars and 15 percent of SUVs and crossovers.

As a result, Canadian inventory is down, prices are high and consumers are left with less appealing options.

Brian Murphy, managing director of Cox Automotive, a used vehicle information company, said he suggests buyers arrange a purchase with a dealer now if they want the car by “October or November.”

In the current market, “consumers may have to spend more time researching to find the vehicle they want. And they may have to travel farther to get it,” he said.

It may take more than a year for supply to normalize and manufacturers to clear the backlog, he added.