A little more than halfway through 2023 and with COVID-19 fading in the rearview mirror, new-vehicle inventory generally no longer appears to be in short supply.
But that doesn’t mean automakers and their Canadian dealers aren’t still contending with hiccups.
“The right inventory is the issue,” said Shahin Alizadeh, president of Downtown Auto Group, which sells 10 brands in the Greater Toronto Area. “There’s not any type of, what I would consider, consistency in inventory.”
While demand for new vehicles remains high, and automakers have recently increased production, some companies are not sending dealers the type of product they want, Alizadeh said. In some cases, automakers aren’t even filling requested orders but are sending dealers higher-margin vehicles.
“Both my Detroit Three stores suffer from the same disease,” Alizadeh said. “Not matching incoming product with sold orders.”
Halfway across the country, Steve Chipman, president of Birchwood Automotive Group, is experiencing the same problem.
“The inventory crunch isn’t over for everyone,” said Chipman, whose 24 dealerships in Western Canada sell 22 brands. “The demand is still there. The demand still outweighs the supply.”
But like Alizadeh, he said customers are not necessarily sold on what automakers are providing dealers. Customers are responding with “some resistance” to what’s being offered, Chipman said.
“You try and get the vehicle at the right trim level, and that’s a challenge. I don’t know if the trim levels are where the customers want to be.”
Customers might have to select a trim level they don’t want or choose something that is “too basic,” he said. Chipman said the automakers “can’t find the right sweet spot.”
STRIKE, RAIL CAR SHORTAGES
While the global semiconductor shortage appears to be easing, other logistical problems have cropped up. A rail car shortage in Ontario means that seven assembly plants might be struggling to move vehicles out of the province.
During two weeks in mid-June alone, a nationwide shortage of rail cars “resulted in anywhere between 1,300 and 2,000 vehicles not being moved,” according to the Global Automakers of Canada, which represents the interests of overseas automakers in the country.
Meanwhile, job action by striking workers at the Port of Vancouver affected the auto industry, too, as new vehicles and parts were left waiting at sea to be offloaded.
“With Korean and Japanese brands, there has always been trouble getting them through the Port of Vancouver,” Chipman said.
He said the brief strike “compounded” the issue.
But demand and sales continue to rise.
DesRosiers Automotive Consultants said automakers sold an estimated 161,901 units in June, up 12.6 per cent over the same month in 2022 and up 1.38 per cent from May, marking eight consecutive months of year-over-year gains.
According to Automotive News Research and Data Center in Detroit, sales through the first six months of the year are up 9.2 per cent compared with the same period last year.
Second-quarter sales were up 12.5 per cent to 404,637, the data centre said.
Additionally, Ford Canada no longer reports quarterly and all numbers are estimates.
SLOW BUT STEADY SALES
Alizadeh’s anecdotal experiences show slow, consistent sales growth.
He calls Saturdays “big ticket” sales days in the summer. On the second Saturday of July in 2021, Downtown Auto Group sold 69 new vehicles. In 2022, it sold 79 and this year 88.
“We haven’t seen a significant drop in demand,” Alizadeh said, adding that he had 800 pre-sold vehicles that had yet to arrive.
“But what we have seen are some finance challenges because of higher interest rates,” Alizadeh said. “There’s no question we’re seeing more loan rejections from the bank on deals that normally would have been acceptable to the bank.”
On July 12, the Bank of Canada raised its benchmark interest rate by 25 basis points, to five per cent.
Moving forward, Alizadeh said he expects consumers will hold on to their current vehicle a little longer and the rising costs are also affecting dealers.
“Carrying costs have more than doubled in the past year,” Alizadeh said. “We’ve gone from carrying inventory in the twoper-cent range to about six per cent. That’s up 300 per cent.”
Alizadeh said he now has some dealer lots with 60 days of inventory, which might be too much.
“The cost of inventory is higher than the gain you’ll make on cheaper vehicles,” he said.
But 60 days of inventory is still a bit of an anomaly.
“We would like a few more cars, but most dealers are content that supply is behind demand slightly,” said Chipman. “I think every dealer in Canada probably would say they prefer the inventory at the levels they are now and the volume at the level it is now because we’re more profitable than we were pre-pandemic.”
“Everybody is telling us cars are built and ready to go, and we’ll sell more in the second half,” Chipman said. “With more availability, you’re going to see a stronger second half.”
