Would-be car buyers find block in the road
While demand has spiked under pandemic, supply issues are hurting sales
Jeff Chalmers loves a challenge. But even he is starting to feel exasperated by his search for a new car.
Chalmers, who lives in Brampton, has been asking at dealerships and scouring online sites for a decent used vehicle, and he recently thought he’d found the one. He saw a Volkswagen City Golf that met his criteria of low mileage and a manual transmission, and at $4,500, the price was right, too. The only catch? The seller was a dealership in Montreal. So Chalmers hopped in his truck and got on Highway 401.
“This is what it takes. There aren’t a lot of vehicles around,” said Chalmers, a weekend radio host at Toronto’s Boom 97.3.
When he got to Montreal and inspected the Volkswagen, he found it had more problems than he expected, so he turned around and drove the seven hours back to Brampton the same day.
He’s still looking, but he says in the post-COVID market, he keeps finding sellers who are asking top dollar for subpar or even unsafe vehicles.
“It is frustrating. It’s a real thing,” he said.
Demand for automobiles has spiked during the pandemic, with analysts citing built-up household savings and concerns about riding public transit as major factors. And with more people wanting to drive, transportation experts have warned of a major increase in automobile use that could lead to more congested and polluted cities after COVID-19.
But while more people want cars, fewer of them are being sold. Thanks to global supply shortages, new automobile sales in Canada remain well below pre-pandemic levels, which is playing havoc with markets for both new and used vehicles.
“Even though the demand is there, it’s not translating into sales,” said Ian MacDonald, chief marketing officer at AutoTrader.ca, an online car marketplace.
According to Statistics Canada, sales of new vehicles in Ontario, which accounts for 45 per cent of the Canadian market, were about 24 per cent lower in August than they were in the same month in 2019. Figures compiled by Scotiabank Economics indicate that nationwide, new light vehicle sales are on track to be about 1.7 million this year, 13 per cent lower than two years ago. Sales last year were more than 19 per cent below 2019 volumes.
There are indications used vehicle sales have also dropped, although the declines aren’t as pronounced. Reliable figures are difficult to find, but according to the Ontario Ministry of Transportation, registrations of used vehicles in Toronto in August were seven per cent lower than they were in the same month the year before COVID-19 hit.
MacDonald said lower sales aren’t a result of decreased demand. Traffic to AutoTrader’s site was up about 20 per cent year over year in 2020, and this year it’s up 50 per cent.
With concerns about virus transmission in public settings still front of mind for many, surveys conducted by AutoTrader and independent researchers indicate a significant portion of people who used to rely on public transit and ride-share services plan not to do so post-pandemic.
People have also been spending less as they stayed at home during the crisis, and “cars are something that they think about when they have that little bit of extra liquidity,” MacDonald said.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said the root causes of the strained car market likely won’t be resolved soon.
A driving force is the continued shortage of semiconductors used in computerized modern cars. Young said auto producers reduced their orders for the components earlier in the pandemic, and the shortage was exacerbated by incidents like the massive February winter storm in Texas, which is home to major semiconductor producers, as well as a fire at an important Japanese plant in March.
Hopes of a quick recovery have been dashed by outbreaks of the Delta variant in South Asia, a region responsible for a significant portion of global semiconductor production.
The supply chain issues have directly affected the availability of new cars, but Young said the knock-on effects on used car sales have made that market “even crazier.”
For instance, a major pipeline for used vehicles is normally rental car companies, which typically keep vehicles for 12 to 18 months before selling them off. But Young said the companies off-loaded much of their fleets earlier in the crisis when global travel ground to a halt and are now unable to buy new vehicles, so the pipeline has been cut off.
With new cars scarce and demand for used vehicles outstripping supply, the market is so out of whack that in parts of the U.S., drivers can sell their gently used vehicles at higher prices than they bought them for two years ago, Young said.
Prices are up in Canada, too. According to AutoTrader, the average cost of a used vehicle was 19.4 per cent higher in September compared with the same month last year. Statistics Canada reported Wednesday that the price of new vehicles was up 7.2 per cent since last year, outpacing the overall inflation rate.
Young predicts it could take until at least 2023 for supply to recover and for some normalcy to return to the market. “The buildup of demand is so strong that there isn’t the production capacity in Canada or in North America to unwind that demand really quickly,” she said.
So, might a prolonged shortage of automobiles put the brakes on the mass shift to driving that sustainable transportation advocates have warned about? Experts aren’t optimistic.
Khandker Nurul Habib, a professor of civil and mineral engineering at the University of Toronto who researches sustainable transportation planning, said concerns about taking public transit aren’t likely to abate soon, and most people in the market for a vehicle will likely wait out the shortage. As they wait, they’ll likely keep aging, inefficient vehicles on the road longer.
“People will depend on driving older cars, and that will cause much more pollution,” he said.