“Here’s a bit of encouraging economic news for new vehicle buyers: last year residual or resale values strengthened. In other words, your new ride depreciated less than it might have in years past.
According to the Canadian Black Book, residual values for all passenger cars increased this past year and they also increased for light trucks.
What’s going on here? Dennis DesRosiers of DesRosiers Automotive Consultants says “residuals for younger vehicles increased primarily because of supply issues in the used vehicle market.”
In other words, supplies of good, late-model used vehicles are tight.
DesRosiers, who works closely with CBB in analyzing marketplace data, notes that leasing collapsed in 2008, has not recovered to date, and that has tightened the supply of used cars. “Second, for the first time since we started tracking them, fleet sales declined significantly in 2008 and 2009,” he says.
Off-lease and off-fleet vehicles are another major source of used cars, late-model used cars specifically. The significant drop in off- lease and off-fleet supplies can be traced to economic conditions two and three years ago – a time when consumers and fleets reigned in their leasing activity during the worst of the economic crisis.
“When you curtail supply, prices go up. And this explains why residuals for 24- and 36-month products are better than for older products,” notes DesRosiers.
For the late-model used car buyer this is bad news in that great deals are hard to find. The good news is that imports of used vehicles from the U.Ss are pretty strong and that somewhat offsets the decrease in supply from Canadian sources.
By the way, DesRosiers expects this tight supply of used cars to continue for three to five years. It’s one factor that makes new vehicles attractive, especially given the auto makers in Canada continue to spice up dealer showrooms with generous sales sweeteners.
Yes, yes, any new vehicle purchase will immediately depreciate the moment you drive it off the lot. But the savvy buyer will weigh that fact against higher used vehicle pricing overall, factor in sales incentives and consider how long he or she plans to retain ownership of the new ride.
Given that Canadians typically hang onto a new vehicle for nearly nine years, and given that the marketplace is rich with incentives for new vehicles and that used prices are higher by historical levels, it seems likely that sales of new vehicles will remain healthy if not overly strong in Canada for at least the next few years.”