Toronto, Ontario — New-car dealers are looking to prop up business with used-vehicle sales as customers seek alternatives to ride-hailing services, rental cars and public transportation during the pandemic.
“Most of our showrooms are on the streetcar route, and you’ll see four or five streetcars go by with just four or five people in the car and that is absurd,” explained Shahin Alizadeh, CEO of Downtown Auto Group in Toronto.
Alizadeh said that one-third of the groups used-vehicle business is coming straight from customers terrified of the pandemic and seeking an alternative.
Alizadeh has turned most of his attention towards the used-vehicle business during COVID in order to gain a bigger share of a market that generated more than three million in sales last year.
More than 3,330 Canadian franchised dealers aren’t even looking into used-vehicle sales, according to Alizadeh, which in turn makes them fall behind independents and private sellers. Offerings such as certified-pre-owned (CPO) programs are also helping boost sales, he said.
Alizadeh believes he doesn’t need to fear independent used-car dealers as competition because the automaker’s CPO programs attract customers who are more willing to spend more money on a used car.
However, out of the three million vehicles sold last year, dealers only accounted for 31 percent of the market, according to DesRosiers Automotive Consultants. That percentage shows that over half of the sales generated came from private transactions and independent used-car dealers.
Warren Barnard, executive director of the Used Car Dealers Association of Ontario, believes that independent used dealers have bounced-back reasonably well since the height of the pandemic in April. Those dealers are seeing a spike in sales due to the former public transit users and first-time buyers entering the market, said Barnard.
“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.”
AutoCanada Inc., an Edmonton-based dealership where the used car business is playing a key role in the company’s efforts to change their sales strategy, which was showing to be a success in the second quarter when used-car sales at Canadian dealerships were roughly equivalent to new retail sales.
AutoCanada Inc., has 63 franchised dealerships, including a group in Illinois. Their gross profit percentage on used vehicles jumped 17.3 percent compared to 16.8 percent in the same quarter in 2019. Gross profit on finance and insurance for used vehicles is also on the rise.
Moving forward, AutoCanada plans to launch a digital sales platform as used cars will most likely remain central to the company’s survival during COVID-19.
“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.”
However, how will all these dealerships keep-up their used-vehicle inventory in order to provide for this growing market?
A shortage of new vehicles is another reason customers who would typically be in the market for a new car, are now delaying purchases or purchase the vehicle after a lease. As a result, many dealers are scrambling for inventory, however, this lack of inventory is preventing the vehicle values from plummeting.
But at the same time, U.S. buyers are rapidly trying to purchase vehicles from Canada due to the discount with the exchange rate, said Brian Murphy, vice-president of research and analytics at Canadian Black Book. Murphy also said that roughly 5,000 and 6,000 vehicles per week cross the border.
“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,” explained Murphy.
