Why the used price decline may be short lived

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After seeing some relief in 2023, a new report is warning that declines in used prices could be a short-lived experience as labour disruptions impacted the auto sector south of the border.

The United Auto Workers (UAW) strike against the Big Three Detroit auto manufacturers (Stellantis, Ford and General Motors) — only recently resolved — threatened to result in higher used vehicle values just as inventory levels and new vehicle sales were starting to normalize, said the report from rating agency DBRS Morningstar.

“Indeed, a UAW strike would likely disrupt the supply chains and impact new vehicle production, creating a trickling effect that could lead to higher prices for used vehicles and the increase in used car prices would be even more pronounced the longer the strike lasts,” the report said, adding that higher used vehicle values may lead some consumers to forgo a vehicle purchase.”

Year-over-year, Canadian Black Book’s Used Vehicle Retention Index for July 2023 showed a 1.4 per cent decrease following a 0.3 per cent month-over-month decrease from June. The index sits at 158.1 points, meaning used vehicles are 58.1 per cent higher than the group’s benchmark. The last time values were at the benchmark point was in the summer of 2020. It peaked at 165 points in March 2022.

“A prolonged and broad strike would most likely slow production for new vehicles, impacting dealer inventory levels [and] likely resulting in lower new vehicle sales for the Big Three auto manufacturers,” DBRS Morningstar reported. “With lower new vehicle inventory, consumers could switch to late model used vehicles. This increase in demand would be a modest positive for used vehicle values which supply continues to be constrained by lower off-lease vehicles and reduced rental car fleet sales.”

It did note, however, that dealer inventories were more on the healthy side leading up to the labour disruption and may make these days manageable.

“Although the strike is only affecting the Big Three auto manufacturers, if the strike is protracted, there is a likelihood of additional strains across the supply chain,” the report said, which could impact sales.