More of Canada's used cars are flowing into U.S.

New analysis from J.D. Power and ALG estimates pickups, large utility vehicles and sedans are rolling into the United States from Canada at higher volumes than ever before.

Leveraging new-vehicle registration data, J.D. Power estimates that if the flow of used vehicles from the north continues at its current pace, 25 per cent of pickups, up to 15 per cent of large, mainstream and premium utility vehicles, and 10 to 25 per cent of mainstream small and midsize cars that were sold new in Canada will eventually wind up in the United States as used vehicles.

Jonathan Banks, vice president, vehicle valuations and analytics at J.D. Power, said most of the inventory is coming from traditional auctions, though he's heard anecdotally of Canadian dealerships are selling used cars directly to U.S. counterparts.

"Everything seems to be in high demand," Banks told Automotive News. Canadian "dealers are complaining that they're not able to get the popular vehicles. The better units are going to the U.S., and the higher-mileage-to-average-condition units are staying in Canada."

According to Canadian Black Book data, the number of vehicles moving into the United States from Canada increased 4.3 percent to 309,505 from 2019 to 2020. From January to May of 2021, 151,952 vehicles were exported to the United States.

Michael Rawluk, president of AutoCanada, told investors in November that shipping vehicles to its U.S. stores allowed the group to capitalize on the market conditions limiting inventory. However, the company — which is Canada's only publicly traded dealership group — would not disclose how many vehicles it had sent to the United States.

Low inventory "is not going to change anytime soon for the U.S.," Rawluk said. "As long as pickup trucks are in high demand in the U.S. and as long as currency is around where it is, then our export division should continue to perform."

AutoCanada sells 27 vehicle brands in eight provinces and operates a group in Illinois. It is headquartered in Edmonton, Alberta, and has 66 dealerships.

Inventory constraints from the microchip shortage are complicating how Canadian dealerships determine where to make the most from their used inventory.

The exchange rate in recent years has offered an opportunity for U.S. dealers to essentially buy vehicles at a discount north of the border. But the Canadian dollar has strengthened in recent months, trading at 82 cents U.S. on Friday, June 10 — up 3 cents from the start of 2021 and 9 cents from a year earlier.

Jonathan Hairabedian, CEO of HGregoire in Saint-Eustache, Quebec, said a stronger Canadian dollar hasn't slowed the movement of vehicles between borders.

"The Canadian market always had a tighter supply than the U.S.," he said. "In the last few months, we've seen the U.S. market actually be lower in days' supply than the Canadian one."

HGregoire has 17 used-vehicle and 15 new-vehicle dealerships in Canada and four Nissan stores in the United States — two in Florida and two recently purchased in California.

Terry Rafih, CEO of Rafih Auto Group, told Automotive News that he's "having the same issues as anyone on either side of the border" regarding the shortage of new and used vehicles.

"We're paying way over [Manheim Market Report] just to get a vehicle," he said. "It's very challenging for us."

Rafih has 19 dealerships in Ontario and 11 in Michigan and Ohio, according to its website.

Canadian Black Book estimated used retail sales volume in Canada is up 38 per cent for the January to May period compared with the same period in 2020, and up 14 per cent from that time in 2019. Given new-vehicle production issues, the valuation company expects used-vehicle sales to continue to outpace prior years' performance throughout 2021.

Demand remains high for used vehicles in Canada, and some dealerships say they can't afford to send more vehicles to the U.S., even if doing so can be more profitable. Rafih said his group, in Windsor, Ont., has slowed the flow of vehicles it sends across the border.

"There are still some [U.S.] dealers buying some cars from Canada," he said. "We're still shipping a few vehicles, mainly pickups and SUVs. ... But it's not nearly anywhere close to where it used to be. There's just no product here. There's nothing to be shipped."

Greg Layson of Automotive News Canada contributed to this report.