Some used cars in the U.S. cost more than new ones: Could it happen in Canada?
The COVID-19 pandemic shut down car manufacturing plants, there's a massive backlog of orders for semiconductor computer chips and many commuters who ditched public transit bought their first cars.
It’s been called a perfect storm in the Canadian auto industry and it’s leading to a lack of supply for both new and used cars and rising prices.
Americans are in the same situation, so some U.S. dealers are buying used cars from auto auctions north of the border and paying prices Canadian dealers can’t compete with.
“If people have to wait two or three months to get a new vehicle, they will buy a used one, so demand is up there [in the used vehicle market],” said Warren Barnard, the executive director of the Used Car Dealers Association of Ontario.
New car inventory is down about 20 per cent in Canada, but it's down about 50 per cent in the United States.
With a strong U.S. dollar, American dealers are able to pay a premium for Canadian vehicles and ship them down south.
“With the favorable exchange rate and the high-demand from consumers, American dealers are able to outbid Canadian dealers at auctions," said Barnard.
There is such a shortage in the U.S. that some used models are actually selling for more than they did when they were brand new.
The website iSeeCars.com is a U.S. search engine that allows you to purchase and research vehicles. The website found that currently, in the U.S., 16 models are more expensive to buy used than new.
“Certain models are actually more valuable as used models than they are as new models," said Karl Brauer, executive analyst for the website.
For example, the website found that a 2020 Kia Telluride sold new for US$ 44,166. Used, it's selling for US$ 47,730, which is an increase of $3,564 or 8.1 per cent.
Similarly, a new GMC Sierra 1500 sold for US$ 54,205. Used, it’s selling for US$ 57,671. which is $3,466 more, or an increase of 6.4 per cent.
Brauer said some American car buyers feel they can’t wait months for a new car and are willing to pay what they have to buy a used one.
“They are saying ‘I need a car and I would like a new car, but I will take a used car at this point and I will pay a little more for a used car’ which is crazy," Brauer said.
Used vehicle prices continue to climb in Canada, but so far have not surpassed the cost of new vehicles.
“I don't see it happening yet, but I could see it happening. It wouldn’t surprise me," said Barnard.
The microchips used in cars are the same ones used in phones and computers and it’s possible that automakers may start manufacturing their own computer chips in North America to avoid a backlog from happening again.