New-car dealers are turning their attentions to used vehicles to prop up business during the COVID-19 pandemic and gain a bigger share of a market that generated more than three million sales last year.
Shahin Alizadeh, CEO of the Downtown Auto Group in Toronto, said that about one-third of the group’s used-vehicle business is coming from pandemic-wary customers seeking an alternative to ride-hailing services, rental cars and public transportation.
“Most of our showrooms are on the [downtown] streetcar route, and you’ll see four or five streetcars go by with just four or five people in the car. It’s just absurd.”
Offerings such as certified-pre-owned (CPO) programs also are helping to boost sales, he said. But Canada’s more than 3,330 franchised dealers aren’t grabbing the lion’s share of used-vehicle sales, typically falling behind independents and private sellers.
Of the more than three million vehicles sold last year, dealers accounted for 930,000 sales or 31 per cent of the market, according to DesRosiers Automotive Consultants. About 1.14 million sales came from private transactions, while about 1.1 million were generated by independent used-car dealers.
‘DOING ALL RIGHT’
Warren Barnard, executive director of the Used Car Dealers Association of Ontario, said independent used dealers have recovered nicely from an “absolute disaster” in April, during the height of the pandemic. Those dealers are seeing an increase in business thanks to former public transit users and other first-time buyers entering the market, he said.
“For the most part, I think our members are doing all right,” said Barnard, whose group represents about 5,000 dealers in Ontario. “I can’t say they’re doing as well as last year, which was a good year, but we’re plugging along and looking ahead cautiously optimistic.”
Alizadeh said he does not see independent used-car dealers as competition because automakers’ CPO programs attract customers willing to shell out more money for a used vehicle.
“People are willing to pay the premium to make sure they’re buying a car that’s been properly addressed as far as reconditioning. It’s a different world altogether.”
At Edmonton-based AutoCanada Inc., used-car sales are playing a key role in the company’s turnaround efforts. That strategy bore fruit in the second quarter, when the used-vehicle sales at its Canadian dealerships were roughly equivalent to new retail sales.
AutoCanada operates 63 franchised dealerships, including a group in Illinois.
Adjusting for an inventory writedown, AutoCanada’s gross profit percentage on used vehicles jumped to 17.2 per cent, compared with 16.8 per cent in the same quarter a year earlier. Gross profit on finance and insurance for used vehicles also rose.
Used cars will likely remain central to the group moving forward, as AutoCanada plans to launch a digital sales platform.
“We’ve been focused on the sale of used vehicles for some time as part of the go-forward plan,” AutoCanada Executive Chairman Paul Antony said during an August call with analysts. “And our progress there, which has been echoed by the experience of our U.S. peers, has provided incredible validation of both this end market and our ability to execute.”
HURTING FOR INVENTORY
But as dealers look to woo used-car buyers, they face an inventory crunch.
A shortage of new vehicles is prompting customers who would typically be in the market for a new car to delay a purchase or to purchase their vehicle after a lease. That, in turn, has some dealers scrambling for inventory — although the tight supply has prevented vehicle values from plummeting, as many had feared at the beginning of the pandemic.
At the same times, U.S. buyers seeking a discount from the exchange rate are continuing to purchase used vehicles from Canada, said Brian Murphy, vice president of research and analytics at Canadian Black Book. Between 5,000 and 6,000 vehicles per week cross the border into the United States, Murphy said.
“There’s a lot of product flowing south. I’ve heard from some dealers that are complaining that they get outbid at auction by people who can afford to spend more because they plan on wholesaling the car in the U.S. as opposed to retailing it in Canada.”
Some dealers are looking to improve margins on used vehicles while inventory is tight. Steve Chipman, CEO of the Winnipeg-based Birchwood Automotive Group, said a central-appraising department uses data to better determine fair market value for trade-ins.
“Through that, we suggest that perhaps if you [the dealer] take in a Honda at our BMW store, you’re going to do better with that car as a group at the Honda store,” Chipman said. “We know that brand-on-brand sales are stronger. The [Honda] car at our Nissan store or Toyota store or BMW store across the street, we will maximize gross at the Honda store.”
Still, inventory remains a challenge, he said.
“I’m more reticent to give up that vehicle than we were in the past because of the shortage of cars,” Chipman said.
