Though the main indicators are suggesting an end to the recession in Canada, for individuals and businesses the day-to-day challenges of navigating a difficult economic environment haven’t changed much. Any good news is welcome after what has been a brutal year, but a 0.1 percent uptick in month-to-month GDP will not change anything on the ground for dealers in the short term. People are as unwilling to part with their money today as they have been for much of this year.
Strategies, then, are needed to loosen the grip that consumers continue to exert on their wallets. The strong growth of the used-vehicle market in Canada is a good place to start for potential hedges against newly-skittish customers still digesting daily headlines about economic Armageddon.
For years the used market in Canada, and indeed around the developed world, has been on the increase as a percentage of the overall vehicle market and in terms of total cash value. This is no surprise, given the twin effect of cost-conscious consumers and the recent decline in new-vehicle sales. What may be less appreciated is the fact that in the past decade, new-car dealers have not participated in much of the growth in the used segment in Canada. The bulk of recent gains has gone to independent shops.
Impressive figures
From 2000 until 2008, used-vehicle sales in Canada went from a little more than two million to just under 2.6 million units. This represents an increase of more than 28 percent. These figures, importantly, do not include end-of-lease buyouts. More impressively, used sales as a percentage of the overall market in Canada surged from 56.6 percent to 61.3 percent over that same time period. As well as reflecting increased consumer price consciousness, these figures represent the increasing quality and lifespan of today’s cars, the proliferation of information associated with the widespread use of the Internet as a means of consumer research, and the often larger margins earned on used versus new sales.
In the first nine years of the current decade, the nominal increase in used-vehicle sales in Canada was 571,000. Of this, independent used-car stores increased sales by some 404,000, and franchised new-vehicle dealers actually saw a decline in their used sales, from 919,000 to 899,000. The rest of the increase came from a 27 percent jump in private sales.
In 2000, new-car dealers sold 45.5 percent of Canada’s used cars compared to 20.2 percent from independent shops. That gap has since narrowed to 34.7 percent versus 31.3 percent. From these figures we can draw one major conclusion: new-vehicle dealers are largely missing out on an important and growing segment of Canada’s vehicle market. With new sales down across the board, the continued strength of the used market could act as an effective hedge against the lower volumes and margins of new-car sales, if the right strategy is employed.
Online presence essential
With the proliferation of information technology and Internet access, it is no longer necessary for consumers to physically visit every showroom to get a sense of the market. Increasingly, consumers are going online to make purchase decisions and once made, visit only the lot that has their choice. As often as not, it is the quality and accessibility of inventory and price information that leads to a sale and not just the product itself on offer. Therefore, a robust online presence is absolutely essential to gain a toehold in the used market. An easy-to-navigate and well designed online database is the single most important investment a dealer can make to make this happen. Given the intensely competitive nature of the IT industry, this can be done for less money than most people realize.
Medium- and long-term investments are often the first casualty of a recession, as day-to-day survival worries grip businesses in all industries. This has certainly been the case in the automotive sector. However as we begin to emerge from what’s been the worst recession most of us have experienced, it is precisely those firms that are able to see beyond the immediate horizon that will put themselves in the best position to weather the next downturn, whenever it comes. The impressive growth in Canada’s used market in the past decade and the erosion of new dealers’ share of it should serve as both a warning and a great opportunity for our network.
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