This year presents fleet managers with a less than ideal scenario when remarketing their vehicles.
One of the many challenges facing Canadian fleets during the COVID-19 pandemic, is the question of remarketing. With prices dropping and with buyers not buying, fleet managers wonder whether to try to sell now, or wait for vehicle values to rebound.
According to Brian Murphy, Vice President, Research & Analytics at Canadian Black Book fleets should either sell now, or wait until late 2020 / early 2021 for a better return on their vehicles.
A steady decline
Murphy says he’s seen a slow and steady drop in vehicle prices overall. “Values have gone down,” he says. “Since February we’ve seen an almost 8% decline for 2–6 year old vehicles. We’ve seen a steady week-over-week decline in values. It’s been a little bit at a time, and it’s adding up.”
Although 8% is painful enough, Murphy says there’s more bad news around the corner. “Generally speaking, we see about another 10% decline still to come, which corresponds with our forecast from a few months ago. We felt we’d see a drop in values overall of about 17-18%.”
Surprisingly, it’s the perennially popular SUV and light truck end of the market that’s likely to see the deepest cuts in their values. “It depends on the segment, Murphy adds. “We forecast about 18% for SUVs, vans, and light trucks and 15% for cars.”
When asked about why cars seem to be holding their values better than other segments, Murphy says he sees an upside potential for cars. “We think compact and sub-compact cars, over the next few months, might actually do fairly well. We foresee a time when there will be an interest in the Canadian market for affordable and reliable transportation as people still deal with the effects of a recession and job loss.”
Although we haven’t seen the hustle and bustle of a typical auction floor in months, Murphy says online auctions are still moving vehicles for fleet customers.
The auctions have been doing a great job of trying to operate faithfully for their customers.
— Brian Murphy, Vice President, Research & Analytics, Canadian Black Book
“They had to shut down rather early, just because of the nature of auctions, with so many people packed together. The major auctions in Canada, ADESA and Manheim, have been operating on their digital platforms, and they continue to do so.
“What we’ve seen at auctions, generally across the country, is that initially the sale rates were very low. So the percentage of vehicles that went down the lane and got sold was quite low — but we’ve seen that go up again. It’s not at normal levels yet, but we’re seeing the auctions get busier by the week. That’s a good sign.”
With governments easing restrictions, dealers are back at auctions as well, buying cars. That’s also a good sign.
Everyone in the fleet space is rightfully concerned that when they go to remarket their vehicles, they’re not going to get the price they had planned for. With the market down 8% already, and with Canadian Black Book forecasting an additional 10% drop in prices, Murphy offers fleet managers two best-case scenarios.
“If someone is considering selling,” he explains, “they can do so now before prices drop even further, or they may have to wait until the tail end of this year when prices start to rebound. We think that once the economy starts to rebound then prices will go back up again.”
That said, there are no guarantees. Everything about this pandemic is uncertain. Will we see a spike in Covid-19 cases? Will everyone have to go back into lockdown? Will there be a second wave? Will dealerships have to close again? No one knows.
Another factor to keep in mind is that if you’re selling a car because you have a new one coming in, be mindful of the fact that the new one may not come in on time as expected. Pretty much every car factory in the world has been closed for months, and they all have to catch up.
“If you’re planning to sell 50 cars because you’re thinking that you’re getting 50 new ones to replace them, that may not happen,” Murphy adds. “As car manufacturers start production again, there may be a shortage of certain trims or models. Or we might see plants shut down again if there’s a problem with Covid-19 or with parts suppliers. Keep in mind that a typical vehicle has about 30,000 parts. They only have to be short one part to halt production.”
Even if a vehicle is made in Mexico, Germany or Canada, there are parts in there from China, and with Chinese parts manufacturers offline for months, certain parts may not be available when they’re needed.
The waiting game
The bottom line, says Murphy, is that fleets need to decide whether they’re willing to take an 8% hit when remarketing now, or whether they want to wait until the end of this year or early 2021 with the hope that prices will rebound by then. In the meantime, with prices forecast to drop another 10% by the summer or fall of 2020, waiting a month or two doesn’t seem to be the wisest of these three options.
It’s not an easy time for anyone in our industry, and we all have to make the best decisions possible, with some of the worst case scenarios we’ve seen in a generation.