Northern Alberta Institute of Technology

How to deal with the inflated used vehicle market

“Never in my life have I seen it like this”

After 15 years in the used vehicle industry, David Drever (Management ’07) is grappling with a radically altered market.

“Never in my life have I seen it like this,” says the owner of D&D Vehicle Sales, which he established in Camrose while taking his diploma at NAIT. “Vehicles used to be a depreciating asset. Over the last couple of years, you can drive a vehicle and have it increase in value.

“There are vehicles that we've sold and taken back on trade,” he adds, “and we've purchased them for quite a bit more than what we'd sold them for originally.”

The alternative, says Drever, is to have no inventory. “Drive around town – how many dealerships do you see with no more than a handful of vehicles on the lot? It’s pretty bare.”

Consumers have had similar tough choices since used-auto prices spiked with the pandemic.  Between December 2020 and 2021, the cost of a second-hand vehicle rose nearly 35%. Here, Drever shares insight into how the increase happened, when the road ahead might flatten out, and what drivers can do in the meantime.

How used vehicles got so expensive

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“The COVID-19 pandemic really created the perfect storm,” says Drever. It began brewing in the new-vehicle sector, when manufacturers shut down assembly plants to comply with restrictions. When they reopened, there were no parts, as those factories had shut down too.

Early on, Drever adds, increased demand wasn’t the problem; supply could simply no longer meet existing needs. But in time this was exacerbated as consumer savings grew: our costs were reduced as we hung around the house. Suddenly, there was money for that new (or used) car, and used vehicles became an even hotter commodity.

How to deal with a seller’s market

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“If you want a vehicle, you have to pay,” says Drever.

But he does see a silver lining. “If you're set on purchasing a new vehicle, your trade has never been worth more than it is now. So purchasing now isn't as bad as it sounds if you're also getting a high value on your trade, or way higher than normal value.”

Otherwise, says Drever, work to maintain your current vehicle until the market corrects itself.

When will the market correct itself?

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“We’re at the height of the problem right now,” says Drever. “I don’t think it’s going to get too much worse.”

While he knows the shortage of used vehicles persists and will keep prices high in the near-term, “I think that supply constraints should start easing towards the end of the year on new vehicles. But it'll probably be a while before we see the prices on used start to return to normal.”

Drever puts air quotes around normal. Even when they drop, prices of used vehicles may never return to pre-pandemic levels. Value may also be compromised. Low-mileage second-hand vehicles will continue to be rare, Drever points out, given that the new vehicles that traditionally supplied that category weren’t made.

Don’t panic

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Do your best to exercise caution around buying used vehicles, says Drever, even in today’s market. Due diligence (see 4 tips for buying used) will save you miles and money down the road.

“Calm heads prevail,” he says. Just as his own experiences in his business have taught him, it’s OK to let an opportunity to pass; another will come. As tempting as it may be, says Drever, don’t rush into a deal.

“I’ve never looked back in the years I've been doing this and said, ‘Man, I'm glad I panicked.’”

4 tips for buying used vehicles

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Cody Paxman (Automotive Services Technician ’05) co-founded Inspectacar to help consumers get the most value of their used-vehicle purchase. Here are his tips on buying in any market.

  1. Meet the seller in person – “Get a feel for what kind of person they are. By talking to the person, you can find out maybe how he or she treated that vehicle.”
     
  2. Don’t buy sight unseen – It’s tempting, but even in a cooler market Paxman has seen vehicles delivered without features as advertised.
     
  3. Get vehicle historiesCarfax reports can reveal past damage or structural changes, as well as any liens against a vehicle.
     
  4. Get an inspection – One inspection revealed to Paxman, and its potential buyer, that the vehicle on offer was, in fact, stolen. Not all revelations are so astonishing, but they can save you trouble and money. Sakkawokkie

Banner image by Sakkawokkie/istockphoto.com


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