I have a five-year-old SUV and I was thinking about trading it in next year. But with used car prices so high, should I rush to do it this spring in case they crash? I want to get as much as I can on the trade-in. – Cary, Calgary
What goes up, must come down. But while Canadian used car prices appear to have hit a ceiling, don’t expect a sudden crash, says a market analyst with Canadian Black Book, a service that tracks used car prices.
“As new car production starts to come back, we anticipate that used car prices will start to decline,” said James Hancock, director of OEM (original equipment manufacturer) strategy and analytics with Markham, Ont.-based? Canadian Black Book.
Used car prices in Canada have gone up 51 per cent since March, 2020, owing to a shortage of new cars fuelled by pandemic demand and supply chain issues including a global semiconductor chip shortage, Hancock said.
“There are not enough new cars, so consumers are looking for used – what was a $20,000 used car before would now be worth $30,000,” Hancock said. “New car inventory is down 50 per cent over this time last year and used car inventory is down 20 per cent.”
Also, because of demand for used cars in the United States right now, more Canadian used cars are being sent there than before the pandemic, contributing to the used car shortage here, Hancock said.
But once automakers can get more chips and build enough new cars to meet demand, used car prices should eventually settle back to pre-pandemic levels, Hancock said.
So, when could that happen? Estimates vary. Hancock thinks there will likely be a gradual decline in used car prices as automakers catch up over the next year or so.
For 2022, Hancock predicts used car prices could see a “modest” decrease this year of a few hundred dollars.
But he expects used car prices to stay above pre-pandemic levels until 2025.
Still a seller’s market
Remember when used cars would depreciate 30 or 40 per cent in the first year?
Right now, some new cars bought last year have barely lost any value, Hancock said.
Some high-demand used 2017 models are worth almost as much now as they were brand new, Hancock said, based on what buyers are willing to pay today. For instance, a 2017 Honda Civic is worth 99 per cent of its original sticker price, a 2017 Volkswagen Beetle is worth 98 per cent and a 2017 Toyota Tacoma is worth 97 per cent, Hancock said.
If you bought a 2017 Porsche Cayman when it was new and sold it today, you’d make money – it’s worth 101 per cent of its 2017 sticker price.
All used cars have seen prices rise since computer chip shortages dinged new car production this time last year, although the rise is the biggest for cars that are four years old or younger, Hancock said. High-demand vehicles like pickup trucks have seen the biggest jump in prices.
“It’s like the Yukon gold rush,” said Peter Hatges, national sector leader for automotive with KPMG. “If you’re returning a three- or four-year-old lease, you can actually get some money back when you return the car.”
Like Hancock, Hatges also expects used car prices to gradually return to pre-pandemic levels as new car production catches up.
“If you look at the used car prices in the short term, we probably have some resistance to a big drop in price, but prices will return to normal in the next 18 to 24 months,” Hatges said.
One thing that could slow the return to normal, he said, is the current push by automakers to sell more electric vehicles.
“There might be a little cushion [to falling used car prices] because people may be inclined to purchase [internal combustion engine] vehicles,” Hatges said.
That’s because people who are wary of electric cars may hang on to their gas-powered cars longer than they would have otherwise. Or, they may seek out a used gas-powered car instead of buying a brand new EV or hybrid, Hatges predicts.
That could temporarily keep gas-powered used cars in higher demand and shorter supply.
A balancing act
Whatever you decide to do, there are going to be tradeoffs.
“If you’re looking to maximize your [trade-in value], you may want to trade in your car sooner rather than later,” Canadian Black Book’s Hancock said. “But replacing a vehicle right now is difficult – you may have to pay more for that car, and you may have to wait for that car.”
If you order a car today, you’ll likely have to wait three to five months for delivery, he said.
Not only that, most manufacturers have ended cash backs and incentives on new cars for now because their inventory is so low and demand is so high – and some have increased the sticker price over last year, Hancock said.
“So you used to see commercials where they’d say you’d get $5,000 off the car,” Hancock said. “They’re no longer offering that.”
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