Looking for a used car? Why supply is drying up, and what it’s doing to prices

globalnews.ca:

Already low on inventory, the used car market is facing an additional supply crunch as fewer off-lease vehicles return to dealership lots — and that’s contributing to higher prices.

A used car was averaged at $35,754 last month compared with about $18,900 in December 2019, Autotrader.ca data shows.

There were fewer new cars for sale during the pandemic years as supply chain woes rocked the industry. Four years later, experts say there are not enough off-lease vehicles entering the used car market to keep up with demand.

Before the COVID-19 pandemic, Canada averaged around two million cars in sales a year, said Daniel Ross, senior manager of auto industry insights at Canadian Black Book. But that dropped to between 1.5 million and 1.6 million vehicles between 2020 and 2023 as pandemic-related supply chain problems held up the production of new vehicles.

That means about a million vehicles were never sold, even as Canada’s population grew.

On average, he said, a new car comes back to the market as a used car four years after it was originally purchased.

“Those vehicles are not coming back to the market because they were not sold new,” Ross said.

Drivers are also holding on to their leased vehicles longer.

Many drivers bought their cars outright during the pandemic after their lease matured and they couldn’t find a new replacement amid the supply shortage, Ross explained.

At that time, buyouts and trades-in were more expensive.

Now, those owners are holding on to their vehicles while they pay off that higher price.

Ross said about 35 per cent of the vehicles in the market are leased.

“That’s going to cause an issue on pricing … if a lot of those customers don’t come back to the market.

“It’s really significant.”

Ross said