Collision Repair Magazine: The dynamic world of vehicle auctions moves at a very fast pace – as does the entire automotive industry. Blair, can you shed some light on the current supply and demand dynamics in the Canadian used car auction market?
Blair Earle: Every used car is created in the new car market. The supply and demand dynamics of the last four years have been unique. We are just beginning to overcome the supply issues. There is an influx of vehicles from trade-ins because new products are coming to market. Lease returns that were extended due to COVID are coming back to market because people have replaced their leases and renewed their fleet. In addition, we will see that car rental companies will have greater access to new vehicles in the second half of 2024, which will produce more vehicles for the used car supply.
Add to that the fact that Canada now has a population of 41 million. Many of those people will be using cars as a mode of transportation. Consumer confidence is another issue that impacts demand. We have interest rates, job insecurity, mortgage rates, grocery prices, and the price of used cars. These are just a few factors that impact the ecosystem. At the same time, dealers are trying to replenish their inventory to meet that consumer demand. With rising fuel prices and economic uncertainty, we’ve seen higher demand for reliable, fuel-efficient vehicles. And there’s a big trend toward online auto auctions where more buyers and sellers can participate, which impacts the supply and demand dynamics. One of the big changes in online auctions this year is the acquisition of IAA Inc. by Ritchie Brothers. This gives us a larger presence across Canada.
CRM: How do you think the pandemic has changed the used car market?
BE: When you think about all the used cars that remained on the market during the pandemic – consumers opted to repair rather than buy new – as well as the demand for parts, demand has increased in our auction areas and in our business unit (IAA Inc.) in the automotive food chain. We’ve gotten a lot of those used cars back in all segments of remarketing, but also in the insurance segment. So the volume in the auction area has increased post-pandemic. And the quality of those vehicles has increased.
CRM: Can you give readers a definition of the Wholesale Vehicle Value Index? How does the Wholesale Vehicle Value Index influence decision making in the automotive industry?
BE: The Wholesale Vehicle Value Index is an important tool for understanding the market trend as you just described. It tracks the average prices of vehicles sold at wholesale auctions. It can fluctuate based on supply and demand, as we mentioned earlier, as well as general macroeconomic conditions, as we discussed with interest rates and inflation.
The index helps retailers and industry participants make informed decisions about inventory management, pricing strategies and purchasing decisions. A declining index could signal oversupply in the market, leading to better prices and opportunities for buyers.
That’s why we at IAA closely monitor the leading wholesale indices to identify market changes. For years, we have observed sustained strong demand in our regions with less price fluctuation. Interestingly, more newer vehicles with minor damage are being offered at auctions, especially in the last three years. A major influencing factor is the huge increase in vehicle thefts due to recovered and repossessed vehicles.
CRM: Can you give us an overview of how new vehicle sales in Canada are affecting supply and demand at auctions and price trends, also taking into account the split between electric vehicles and internal combustion engine vehicles?
BE: This is an issue that is very close to my heart, especially in Canadian industry.
After the pandemic, new car sales in Canada took much longer to increase. In 2019, we were on track to sell two million new cars nationwide. During the pandemic years, that number dropped to 1.5 to 1.6 million vehicles. Even in the second half of this year, we will not have reached the two million new car sales mark.
In situations where new car sales are strong, there are more trade-ins, which increases the supply of used cars.
There is a growing trend towards electric vehicles in Canada. Recently, the purchase of these electric vehicles has declined slightly. This is partly due to the removal of incentives in some regions, as well as pricing and availability. This change is also affecting the used car market. Internal combustion engine vehicles still dominate the market in Canada, especially in rural areas.
As mentioned above, higher new car prices are pushing consumers into the used car market, which in turn increases demand and potentially drives up the prices of those used cars.
So we have all these new people in the country – they need transportation – and we have them serving the used car market through the new car chain. The demand for used cars and used parts and our good partners on the non-franchise dealer side – the recyclers and the collision centers – are still looking for those used cars and those used car parts.
CRM: Could you elaborate on the total loss rate in Canada and its impact on insurers and vehicle aftermarket auctions?
BE: Insurers determine the total loss ratio; they compare the repair costs with the actual cash value – the ACV. This ACV is very important in determining the total loss. If the ratio is, for example, between 70 and 80 percent of this ACV, this can trigger a potential loss assessment.
The overall loss ratio is critical in the insurance industry. It represents the percentage of claim costs relative to total premiums collected by the insurance company. In Canada, the ratio fluctuates due to factors such as rising repair costs, new technology in vehicles and ADAS, and increased accident frequency. The overall loss ratio directly impacts vehicle supply at auctions. A high overall loss ratio means more supply hits the auction streets for our partners. I recently read an article that I was very interested in. It detailed how much technology is left in autonomous vehicles. I think the trend will continue as overall loss ratios will increase, and that could largely be related to the complexity of glass repairs and ADAS.
CRM: To clarify your point, many repairs and total losses can be due to the complexity of the repairs. Many of the cars that will be on display at the IAA may have one part badly damaged, but the rest of the car is perfectly intact and an option for used parts?
BE: One hundred percent.
CRM: Can we talk about vehicle theft? You mentioned that repossessed and stolen vehicles enter the IAA auction pipeline.
BE: As far as vehicle thefts go, I would like to say we will see a decline. If we follow a trend over the last 24 months in Canada, that does not appear to be the case. The number will continue to rise, especially for high-demand vehicles, whether imported SUVs, pickup trucks or premium vehicles.
These thieves are outsmarted by modern security systems, but this impacts vehicle owners and affects insurance premiums and resale value, so it is important to be very careful.
Economic factors such as interest rates or unemployment rates play a major role. Due to the economic pressure on consumers, we have seen an increase in foreclosures. And many of these repossessed vehicles are being sold through our auction channels after the waiting period has expired.
I think we’re going to see an increase in Canada over the next 18 months. We’ve always seen very flat sales, but there’s going to be more seized product coming into the Canadian market.
