Auto Remarketing Canada: Amid ongoing supply constraint, buyers & sellers in Canadian wholesale market ‘trying to figure things out’

Although digital remarketing was on the rise before COVID, many in the industry still preferred the in-lane process and physical auction sales.

Then the pandemic hit. And the economic shutdown was soon to follow. With the closing of auctions’ physical doors, the pivot to digital wholesale was in full force.

Now, even though many physical auctions have opened their doors once again, the market remains skewed toward digital.

And then the remarketing world was challenged by low used inventory, low lease trade-ins and a consequent spike in used prices, which made sourcing difficult and scared/priced many used buyers out of the market. Consequently, many Canadians held on to their older vehicles until the market showed signs of normalizing.

How will 2023 shape up? Experts from Copart and KAR Global shared their remarketing insight with Auto Remarketing Canada below.

Scott Macaluso, managing director at Copart, said,  “The Canadian auto remarketing landscape is a very competitive market,” citing high prices and limited inventory as two factors behind the current environment.

Macaluso said Copart has definitely seen an uptick in buying and selling, as dealers have had to look to alternative sourcing strategies to source quality used vehicles.

“They (used prices) shouldn’t be as high in ‘23 as they were in ‘21 and ‘22, based on the limitations of supply in the market,” said Macaluso.

He expects the market to slowly begin to open further, turning into a “solid year for our marketplace and the whole wholesale market environment.”

Trevor Henderson, chief operating officer of ADESA Canada at KAR Global, said, “Volume does continue to be a challenge in the industry. I think most would agree that we are well below anything that we would have previously considered normal volume in the used-car business, both retail and wholesale, but particularly in wholesale.

“We’ve certainly seen constrained supply for an extended period of time, and that’s in all segments.”

This includes off-lease, daily rental, corporate fleet and the dealer segment, among others.

KAR Global sees the primary factor behind this constraint continuing to be lack of new-vehicle supply that would then bring about turnover to the remarketing industry and create opportunities for retail or fleet customers to turn over their inventory.

“We keep hearing that new-vehicle production is going to increase, and there’s going to be a bit of a release, like a relief valve,” Henderson said. “For used cars, it’s pretty hard to predict when that’s going to happen … so we are all kind of sitting and waiting.

“And it’s not just us in the wholesale space, it’s those who have fleets who are looking to  refresh their vehicles.”

Macroeconomic environmental factors are also causing changes in the auto environment, including inflation and interest rates, which both will likely have an impact on new- and used-vehicle demand going forward.

With the ongoing tight supply constraints, Henderson said buyers and sellers in the market are really “still trying to figure things out.”

“I think everyone knows prices have declined, but it’s the extent of the decline and the impact on each discrete transaction that’s hard to pin down,” said Henderson. “And that’s where we see uncertainty.”

Wholesale buyers and sellers seem in general a bit tentative right now — cautious or more conservative.

“That sort of conservative nature has an impact on conversion rates, and that’s really how we measure demand in the market. And those conversion rates have been lower than would be typical and volatile,” Henderson said. “So we do see volatility from market to market and week to week.”

That trend is likely to continue, and used-vehicle pricing will continue to drop, but it’s important to remember the following:

“Used-vehicle prices remain very high, having been driven up over the past three years by severe shortage,” Henderson said. “And so while we do see those price declines there, they certainly are against used-vehicle prices that are higher than we would’ve expected.”

Market volatility will certainly keep remarketers and dealers on their feet in the new year, as many trends that began in the latter part of 2022 are expected to continue into 2023.

Challenges in the market 

Henderson said he sees this as presenting itself in short-term shifts in demand. For example, up one week and down the next week.

“That’s what creates some difficulty for dealers when it comes to pricing vehicles, whether they’re selling or buying,” Henderson said. “It is difficult to kind of pin down where the market for this vehicle is right now.”

That becomes more and more difficult as the industry expects consumer demand to be impacted by economic factors, including higher interest rates and concerns about inflation.

When buyers in the wholesale market are a little concerned about how quickly their inventory will turn, they will be a little more tentative in their buying behavior.

“I think we will see some economic impact on people’s ability to pay. And so probably an increase in payment delinquency, and ultimately some increase in default, which ultimately results in more repossessions,” Henderson said.

“That will bring some more volume into the wholesale market, so that for those who are looking to purchase vehicles, they will have access to some new selections, but that’s obviously a challenge in the broader economy.”

To read the full article on Auto Remarketing Canada, click here.