Current wholesale & retail price moves pinching potential dealer profits

MARKHAM, Ontario – 

As if dealers didn’t already have enough challenges amid the coronavirus pandemic, the newest information from Canadian Black Book showed wholesale and retail prices are heading in opposite directions that make the prospect of generating margins and profit even more difficult.

Canadian Black Book released its newest COVID-19 Market Update earlier this week with analysts noting that wholesale values climbed for both cars and trucks during the second week of September; albeit at much smaller rates compared to large increases they recorded during the value rebound unfolding during the past two months.

While the rises might have been smaller, CBB said car values now have climbed five consecutive weeks while truck values are in the midst of a streak of eighth consecutive weeks of upward movement.

Meanwhile, Canadian Black Book combined its latest data and observations to summarize the retail landscape, compiling figures that might frustrate dealer principals and general managers.

“We enter September with a negative trend in listing prices, similar to what has been observed since early June of this year,” analysts said in the report. “The trend in retail asking prices has been quite different compared to those in the wholesale market, where values have been strengthening.

“The conclusion from the data is that Canadian retailers’ used-vehicle margins are still under pressure and profit levels continue to be squeezed during the crisis,” they continued. “The 14-day moving average for retail asking prices has fallen by 3.2%, since the first week of June’s peak.

“In the same period, wholesale prices have increased by over 6%, thereby compressing margins by over 9%. The total decline in price is just over $900,” analysts went on to say.

More wholesale price details

For the week of Sept. 7, Canadian Black Book determined that nine car segments increased in wholesale price by an average of 0.05%. As mentioned, that’s smaller than other recent readings — 0.14% during the week prior and a record 0.35% spotted three weeks ago. Analysts computed the average during this stretch to be 0.16%.

“Wholesale price trend for cars remains positive, yet gains have weakened in recent weeks,” Canadian Black Book said.

Analysts noticed that values for near luxury car climbed most this past week, rising by 0.49%, followed by the luxury car segment at 0.12%.

Perhaps reflecting the change of seasons, CBB mentioned the car segment with the steepest decline this past week was sporty cars sliding by 0.43%. Subcompact car values also declined by 0.12%.

Counter to what their U.S. colleagues recently reported, Canadian Black Book indicated truck values continue to be strong, climbing by an average by 0.19% during the week of Sept. 7. That topped the previous week’s average of 0.10%.

Analysts pointed out that values for full-size crossover/SUVs led the way with a gain of 0.54%, followed closely by sub-compact luxury crossover/SUVs (up 0.52%), sub-compact crossover/SUVs (up 0.50%) and minivans (0.50%).

Wholesale volume, sales rate discussion

On the volume front, Canadian Black Book described a scene where the cliché quantity over quality might be appropriate.

“In September, our analyst team has noted that auction volumes remain strong. We have noted that the quality of vehicles in many cases has decreased. Specifically, this past week our team noted larger numbers of higher mileage vehicles, older model years and vehicles with corrosion issues,” analysts said.

Canadian Black Book noted that industry feedback continues to be that used vehicles are in tight supply.

The report noted that the number of days to turn for vehicles listed for sale by retailers dipped again during the second week of September. CBB pinpointed the national average at 46 days with the rolling average for the past 14 days at 53.

To put that number in perspective, analysts recapped that the national number was 75 days to turn back at the end of May. Canadian Black Book elaborated on how that data point has shifted during the past few months.

“The shortage in used product, which may seem surprising to many, is a result of what has gone on in the market this year,” analysts said. “When lockdown actions first halted much of the industry in Canada, this created greatly reduced numbers of trade-ins to feed auctions and for retailers to sell.

“Tens of thousands of lease returns, a very large source of used-vehicle supply, were extended, postponing the return to market of these vehicles. At the same time, the number of repossessions in the market also shrunk the number of vehicles available for sale at wholesale,” they continued.

“Our team expects drastically increased volume of repossessions over the duration of 2020,” CBB went on to say. “Much higher than expected levels of unemployment along with the looming closures of many businesses in Canada are expected to result in more repossessions.

“This increased supply, at a time when demand has an uncertain future, will drive prices downwards before a lasting recovery can take place.”

Also of note, analysts mentioned the sales success rates in Canadian auctions remained lower this past week versus what they have observed in recent months when rates were exceptionally high.

Last week, Canadian Black Book spotted a high sales rate of 86% in one auction lane and a low of 25% in another. On average, CBB pegged the average sales rate at approximately 60%; “much lower than rates we have been seeing,” according to analysts.

“We continue to note large numbers of prospective buyers online. However, prices are starting to become more static with fewer rapid increases,” they added.

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