Though off-lease supply in the U.S. is expected to continue growing this year, Canadian dealers may experience the “pain” of tight used supply for a couple of years longer, says ADESA’s Tom Kontos.

Auto Remarketing Canada’s sister publication Auto Remarketing recently chatted with Kontos about a few hot topics in the latest issue of Pulse — ADESA Analytical Services periodic review of economic trends impacting the remarketing business — and discovered the once-booming Canadian leasing market is not expected to return to pre-recession levels.

In fact, Kontos explained that since the 2008 recession, “leasing hasn’t recovered in Canada nearly to the degree it has in the U.S.”

He continued: “We feel that there is a little bit more pain to be felt for dealers in Canada speaking of off-lease volume, and for auctions, as well. And this pain will be felt in Canada one to two years longer (than the U.S.), the reason being the decline in leasing in Canada really hit a high point in 2010.”

To explain why, one must look at pre-recession trends. Before 2008, Canadians were partial to leasing, helping to provide dealers with abundant off-lease supply in the auction lanes to fill their used supply.

That said, when the economy crashed,  it wasn’t just consumers who changed their ways.

“Many folks actually backed away from offering leases. It wasn’t just that people chose not to lease or buy as many vehicles, but we also had less availability of leasing as a financing alternative, and Canadians seem to have gravitated toward longer-term installment loan financing as an alternative to leasing during this period,” Kontos said, noting customers have begun replacing leasing with different financing preferences. 

“The bottom line is lease origination volumes haven’t recovered at nearly the degree that they have in the U.S., so the decline in off-lease volume will likely remain in place in Canada for longer,” Kontos concluded.

And the ADESA Canada Used Vehicle Price Index for 2012 reflects low off-lease supply and tight used supply in general.

According to the Pulse report, the index was “relatively high in 2012, reflecting shortages of used vehicles, particularly off-lease units.”

Gas Prices Not Tied to Recent Price Changes

But some of the price jumps on the wholesale side of things may come as a surprise,  as gas prices fluctuated so much in 2012, surging upwards last summer.

With this in mind, it would seem demand for more fuel efficient vehicles would push wholesale prices up for these smaller vehicles.

But according to the Pulse report, wholesale prices for minivans, “one of Canada’s most popular model class segments,” were particularly strong in 2012, though all segments showed gains.

Specifically, the average price for a minivan in 2012 was $8,094, up from $6,663 in 2011 — this shows a 21.5-percent increase year-over-year.

On the other hand, compact cars only rose by $7 or .1 percent year-over-year.

“I’d say both in Canada and the U.S. the people have become accustomed to higher gas prices. So the ups and downs that particular segments experience in terms of their wholesale prices are more immune to gas prices because gas prices have remained relatively high,” Kontos said.

“There hasn’t been quite the volatility in gas prices, and in Canada, there is probably less volatility than in the U.S. anyway, because the way gas is taxed and things like that cause the price to be elevated anyway. So the (wholesale) prices are more independent in Canada of high gas prices,” he explained.

Instead, Canadian wholesale prices are more tied to the availability of vehicles, Kontos said.

“The minivans are a fairly popular vehicle in Canada, so it is understandable that their prices might be pretty strong, even if gas rates are high,” he added.

As for where future wholesale prices are headed, the exec explained ADESA expects less off-lease supply and probably less supply in general to put “upward pressure” on wholesale prices.

He then presented one potential scenario.

“Though I can’t nail down a specific percentage, if we see a 5-percent decrease in supply, we can expect a 1- to 3-percent increase in pricing,” Kontos shared.

Kontos also mentioned one more economic factor that could potential push used prices up, as well.

Canadian unemployment, though still high, is at its lowest level in four years (7.1 percent), according to the Pulse report.

Many re-employed consumers will hit the markets for a new vehicle, upping demand and potentially pushing wholesale prices higher in an already tight used supply environment. 

Kontos said recent developments with tar sands productions and mining expansion in Canada will also lead to
more jobs.

“With tar sands production, and mining in Alberta, one can expect more people getting jobs, which would increase overall demand for new- and used vehicles,” he concluded. 

Editor’s Note: Staff writer Joe Overby contributed to this report.

Sarah Rubenoff can be reached at srubenoff@autoremarketing.com. Continue the conversation with Auto Remarketing Canada on LinkedIn and Twitter.