UNDERSTANDING DYNAMIC FACTORS

Collision Repair magazine: The dynamic world of vehicle auctions is moving at a very fast pace—as all the automotive industry is. Blair, can you shed some light on the current supply and demand dynamics in Canada’s used vehicle auction market?

Blair Earle: Every used car is born out of the new car market. The supply and demand dynamics in the last four years have been unique. We’re just starting to overcome supply challenges. There’s a flow of vehicles from trade-ins because of new product coming through the marketplace. Lease returns that were extended through COVID are coming back to the market because people have replaced their leases and fleet renewals. In addition, we’re going to see rental car companies have greater access to new vehicles in the back half of 2024, which will produce more vehicles for the used car supply.

On top of that, Canada now has a population of 41 million. Many of those people are going to seek transportation by car. Consumer confidence is another topic that affects the demand. We’ve got interest rates, job uncertainty, mortgage rates, grocery prices and the price of used vehicles. Those are just a few factors affecting the ecosystem. Meanwhile, dealers are looking to replenish their inventories to meet this consumer demand. We’ve seen a higher demand for reliable, fuel-efficient vehicles due to the rising fuel prices and economic uncertainty. And there’s a big shift towards online vehicle auctions, allowing more buyers and sellers to participate, which affects the supply and demand dynamics. One of the big shifts in online auctions this year is that IAA Inc. has been acquired by Ritchie Brothers. It gives us an expanded footprint across Canada.

CRM: How do you think that the pandemic has changed the used vehicle market?

BE: Well, if you think of all the used vehicles that were kept on the marketplace during the pandemic—consumers opted to repair rather than buy new—as well as the demand for parts, the demand in our auction lanes and our segment of the business, [IAA Inc.] has risen higher in the automotive food chain. We’ve had a bunch of those used vehicles come back in all segments of remarketing, but also the insurance segment. So, the volume in the auction lane has increased coming out of the pandemic. And the quality of these vehicles has increased.

CRM: Can you give readers a definition of Wholesale Vehicle Value Index. How does the wholesale vehicle value index influence decision-making in the automotive industry?

BE: The Wholesale Vehicle Value Index is a crucial tool for understanding the market trend as you just described. It tracks the average prices of vehicles sold at wholesale auctions. It can fluctuate based on supply and demand as we touched on, and broader macroeconomic conditions as we talked about interest rates and inflation.

For dealers and industry stakeholders, the index helps with making informed decisions about inventory management, pricing strategies, and purchasing decisions. A declining index could signal an oversupply in the marketplace, leading to better pricing and opportunities for buyers.

So, at IAA, we keep a close eye on the leading wholesale indices for shifts in the market. For years now, we’ve seen demand in our lanes holding strong with less pricing fluctuations. More interestingly, we’re seeing more late model, low damage vehicles available at auction, particularly over the last three years. A big influence is the huge increase in vehicle theft, with recovered and repossessed vehicles.

CRM: Could you give us an overview of how new vehicle sales in Canada are impacting the auction supply and demand, the pricing trends, and including the split between electric vehicles and internal combustion engine vehicles?

BE: This is a topic that’s near and dear to my heart, especially in the Canadian industry.

New car sales have taken a lot longer to grow, post-pandemic, in Canada. In 2019, we were on track to sell two million new vehicles nationwide. That dropped off to between 1.5 million vehicles to 1.6 million vehicles during pandemic years. We’ll still be short of two million new cars sold on the second side of this year.

In situations where new vehicle sales are strong, we see more trade ins, which increases the supply of used vehicles.

Canada is observing a growing trend towards electric vehicles. Lately, there’s been a small decrease in the purchase of those electric vehicles. Part of that is due to removed incentives in some regions, as well as the prices and availability. This shift affects the used markets as well. ICE vehicles still dominate the marketplace in Canada, especially in rural areas.

Higher prices for new vehicles, as I mentioned, have pushed consumers towards a used market, which increases demand and potentially raises prices for these used vehicles.

So, we have all these new people in the country—they need to have transportation— and we have them feeding the used vehicle market through the new car chain. The demand for used vehicles and used parts and our good partners on the non-franchisedealer side—the recyclers and the collision centres—are still looking for those used vehicles and those used vehicle parts.

CRM: Could you elaborate on the total loss ratio in Canada and its implications for insurers and vehicle supply auctions?

BE: Insurers determine the total loss ratio; they compare the cost of the repairs to the actual cash value—the ACV. That ACV is very important in total loss determination. If the ratio is between, for example, 70 percent and 80 percent of that ACV, it can trigger a potential loss assessment.

The total loss ratio is crucial in the insurance industry. It indicates the percentage of claims costs relative to the total premiums earned by the insurance company. In Canada, the ratio fluctuates factors such as rising repair costs, the new technology in vehicles and ADAS, and an increased frequency of accidents. The total loss ratio directly influences the supply of vehicles at auction. If you have a high total loss ratio, that means there’s more supply coming into the auction lanes for our partners. I recently read an article I was very interested in. It detailed just the amount of technology that’s still to come with autonomous vehicles. I think the trend is going to continue as total loss ratios are going to go up and it could be largely related to complexity in glass repairs and ADAS.

CRM: To clarify your point there—a lot of repairs and total losses may be due to complexity of repairs. A lot of the cars that IAA might see might have one part that’s badly damaged, but the rest of the car is perfectly intact and an option for used parts?

BE: A hundred percent.

CRM: Can we touch on vehicle thefts? You mentioned repossessed and stolen vehicles end up as part of IAA’s auction pipeline.

BE: In regard to vehicle thefts, I’d love to say we’re going to see a decrease in it. Apparently, that’s not the case, if we follow a trend over the past 24 months in Canada. It’s going to continue to rise, especially for high demand vehicles, whether it’s import SUVs, pickup trucks or premium vehicles.

These thieves have outsmarted modern security systems, but this affects vehicle owners, impacts insurance premiums and resale values and so it’s important to be very careful out there.

Economic factors such as interest rates or unemployment rates play significant roles. We’ve seen an uptick in repossessions due to the economic pressures on consumers. And a lot of those repossessed vehicles, once they go through the waiting period, have been going through our auction lanes.

I believe we’re going to see that increase over the next 18 months in Canada. We traditionally have been very flat, but there’s going to be extra repossessed products going through the Canadian marketplace.