MARKHAM, Ontario -

Wholesale vehicle prices in Canada have now fallen for five straight weeks, but take that trend with a grain of salt.

According to Canadian Black Book’s latest weekly COVID-19 Market Update, the declines are lower than seasonally expected and pale in comparison to November 2019, thanks to basic supply and demand (more on that later).

Specifically, there was a 0.16% price dip, on average, for car segments last week, while truck prices were down an average of 0.21%.

Car prices have fallen an average of 0.14% per week over the last month, according to CBB, with truck prices dropping 0.11%.

 Last November, car values were falling an average of 0.39% each week and trucks were softening 0.29%.

“The fundamental rules of supply and demand are to be blamed here,” CBB said in the report. “With shorter supply, prices are not undergoing the seasonal decline we would normally see at this time of year and therefore showing smaller levels of depreciation.”

So, let’s look at some supply dynamics.

As CBB explains, November typically begins the “quieter times” in wholesale that lasts through early March, and this year appears to be no different. Auction volumes have dropped roughly 20% over the past few weeks, CBB estimates, amid low supply overall.

To illustrate this point, CBB shares the example of off-lease supply, which perhaps isn’t having the market impact it was once expected to this year.

“As a reminder, the industry was expecting to see a record number of leases returning to the market. We are now three years after the best sales year on record; hence those 36-month leases are finished,” CBB explained.

“Given the tight supply in general, a large portion of lease returns are being purchased by retailers processing the lease returns and not moving to wholesale,” it added. “Of the lease return vehicles not purchased by the grounding dealers, many are processed through the private upstream channels of the leasing company.”

CBB anticipates short wholesale supply will continue throughout the month.

But the shortage — driven by lack of trade-ins, stemming from slower retail sales in earlier months — shouldn’t be long-lasting. In fact, CBB called for a “slow build-up” in wholesale sales during fall and winter months.

“CBB believes this shortage to be temporary, with more supply expected in the coming months, especially as repossessions will begin to happen in greater numbers as personal bankruptcy filings increase and lenders begin to focus more resources on collecting past due accounts,” it noted.

CBB also projects more than 400,000 lease terminations next year, which is on par with 2020.

“These units coming to market in 2021 will help provide much-needed supply relief,” CBB said.

Turning back to the pricing side, the company said in a separate analysis that the Canadian Black Book Used Vehicle Retention Index has broken records for two straight months. And that, again, ties back into supply.

It was at 110.5 in October after reaching 109 in September.

“The record high levels are primarily due to shortages in supply of used vehicles in the marketplace,” CBB said.  “Many months of lower new car sales have reduced the volume of vehicles entering the market as trade-ins. 

“High demand for used vehicle for export to the U.S. market has also siphoned off considerable volume of supply from Canada.”  

The index record also touched on the impact of lease returns, which despite being at record highs, have been gobbled up by grounding dealers to take care of inventory needs amid low supply. But expect some opening in supply next year. 

“It is expected that the level of supply in the market will grow in 2021 as repossessions slowly rise and consumer demand stumbles,” CBB said.