Canadian dealers say new-vehicle inventory is improving slowly, but remains well below pre-pandemic levels, according to a new survey.
DesRosiers Automotive Consultants (DAC) and the Canadian Automobile Dealers Association (CADA) partnered to query dealers coast to coast and found inventory to be 42.3 per cent “of normal” in the first quarter of 2023 compared with 19.4 per cent in the same period last year.
The two organizations define “normal” as “being pre-pandemic (2019) levels according to those responses” in previous surveys.
The average number of vehicles on dealer lots on hand now stands at 59.9, Daniel Azarov, a consultant at DAC said. That’s down from the average of 141 before COVID-19 started to affect the industry.
Analysts agree that the situation is improving.
The number of days it takes to sell a new vehicle once it arrives on a lot has been increasing for the last eight months, according to J.D. Power Canada.
Days to turn, as it’s called, stood at 41 in March, the latest month for which data is available.
“Days to turn has been rising slowly … as more supply of vehicles accumulates in Canada, that is clear,” Robert Karwel, J.D. Power Canada Senior Manager of Automotive Practice Canada, said. “But what is murky is how this number changes from segment to segment, or brand to brand.
J.D. Power doesn’t have an actual inventory count, and those numbers aren’t available the way they are in the United States. J.D. Power triangulates three metrics to determine inventory positions: Days to turn, incentive spending, and dealer gross margin.
“This is a pretty good proxy for knowing what the inventory situation on the ground might look like,” Karwel said. “What this then tells us is that the concept of competitive asymmetry is really taking hold of the Canadian retail market, which means different parts of the auto market are acting very differently,” Karwel said. “Bigger, more expensive vehicles are slowing, and there is more than enough inventory. Specifically large pickup, large SUV, and some high-priced luxury segments.”
This is in contrast to sales trends seen during the pandemic and early stages of the global microchip crisis when firms such as J.D. Power and DesRosiers saw automakers cash in on the luxury market when people had money to spend on cars rather than vacations during lockdowns and automakers were shifting chips to high-margin vehicles.
Karwel said retail velocity, the speed at which new vehicles sell, “is slowing dramatically” for large pickups. Days to turn now stand at 85, or more than double the national average.
The speed at which compact SUVs — the top-selling segment in Canada — is also slowing, but days to turn still stand at 26. However, incentives in that segment are up 40 per cent over last year but remain below the national average of $2,500.
“That is the asymmetry we see. It's getting ugly out there, and national averages for the entire market no longer give you enough clarity as to what is happening,” Karwel said. “What’s driving this are interest rates, and monthly payments.”
Bigger vehicles mean bigger payments and more interest.
'TIGHTER LID ON INVENTORY'
Sam Fiorani, vice-president of global vehicle forecasting at U.S.-based AutoForecast Solutions, says his firm doesn’t track Canadian inventory levels, but says it’s an improving situation south of the border, too.
“In the U.S., the growth of dealer inventory is happening slowly. While it’s far from where it was pre-pandemic, inventory levels are about double they were at the trough [of the chip crisis], but that’s about half of where they were a few years ago,” he said. “At this pace, it will take until early 2024 before these levels approach a steady state of around 50 days supply. The previous standard had been 60 days for cars, but manufacturers believe they have learned their lessons and expect to keep a tighter lid on inventory going forward.
“We don’t believe they will hit their goal, but should be able to target somewhere below the old standard and will, on occasion, over-build, requiring old methods such as consumer rebates and cash back to reduce supply. Those situations are unlikely to happen this year.”