Reduced demand and imports lift supply



According to Scotiabank Used Car Price Index, Canada’s preowned vehicle market began to weaken in mid-2006.


After strengthening since late 2003, used car prices have recently weakened, alongside softer economic conditions and an increased supply of pre-owned vehicles, according to the latest Global Auto Report by Scotia Economics.


“The decline began in Canada last summer, as rising imports of second-hand models from the U.S. undercut pricing for pre-owned vehicles in Canada,” said Carlos Gomes, Scotiabank’s auto industry specialist.

The Scotiabank Used Car Price Index, which tracks prices in Canada’s pre-owned vehicle market, began to weaken in mid-2006, with the decline accelerating in recent months. In February, the Index dropped eight per cent below a year ago, the weakest performance since the economic downturn of the early 1990s. The decline reflects a 40 per cent year-over-year surge in the number of second-hand vehicles imported from the U. S., as well as some reduction in demand for pre-owned vehicles.

After declining steadily between 2002 and ’05, the number of vehicles coming off-lease has also started to edge higher, boosting the supply of used vehicles and providing some downward pressure on prices. It is estimated that the increase in the number of vehicles leased in Canada, from a low of 500,000 units in 2001 to nearly 650,000 in 2005, will translate into an additional 100,000 vehicles coming off-lease in 2007 and in 2008.

“The increased availability of second-hand vehicles comes at a time when Ottawa is attempting to persuade Canadians to scrap their older, high pollution-emitting vehicles and replace them with newer, more fuel-efficient models,” says Gomes.