The ‘horror story’ of the used vehicle market

The used vehicle market is facing significant supply challenges — and a course correction isn’t expected for many years to come.

Daniel Ross, senior manager of industry insights and residual value strategy at Canadian Black Book described the current state of the used vehicle market as a “horror story.” He highlighted that the market has been struggling with poor sales over the last four years.

“We’re looking at poor used supply the next four years,” he warned at the Talk Auto event in Vaughan, Ontario, in the fall.

He noted that his group looks at the market on a 48-month level. So when examining whether or not manufacturers will start to bring those vehicles into showrooms as used cars, it’s not a bright picture.

“We’re finding those vehicles that are going to be coming back to the marketplace, we’re down 1.2 million vehicles,” Ross observed.

Adding to the problem, Ross noted that lease penetration during COVID-19 dropped to less than 20 per cent, compared to the usual average of 35 per cent.

“So with that top of mind as well, we’re seeing those numbers decline up to 2027; 2028 we see it pick up,” he said. “We’re hoping that it continues on that trajectory, dependent on affordability of new cars.”

Ross emphasized that while the current trend might be good for retained and residual values, it is not necessarily healthy for the overall market.

“It’s probably good for residual value down the road if that’s the trend that we are seeing going forward — that might not be the best health for our overall market network,” he said.

Ross stressed the importance of understanding the forecasted mix of used vehicles, particularly as the market shifts towards higher ratios of electrified units than before.

“And we need to mitigate them on the back end for the used supply so we can sell that used vehicle, retain higher value, and get that consumer to adopt a used vehicle, EV or otherwise, as an option for them, rather than stepping away and being a little scared of one,” he said.

By 2030, the ratio of used electric vehicles (EVs) is expected to reach 19 per cent, up from 2 per cent currently. This translates to an increase from 15,000 battery electric vehicles (BEVs) in 2024 to 336,000 BEVs in 2030.

These vehicles need to be managed effectively as they return to the market,

“We got to really fine-tune our tools in the next couple of years to manage these vehicles as they come back: Make them attractive, measure the battery health on them, understand the market holistically — what it does in an ecosystem of lower cost of ownership — and instruct and educate that consumer to move the bar forward and help us move these vehicles into the hands of consumers,” Ross suggested.

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