How a lack of off-lease vehicle is hurting the used market

The Canadian used vehicle market is facing a significant supply shortage of younger off-lease vehicles, expecting to negatively impact the used sales market.

This trend is expected to persist through 2027, according to DesRosiers Automotive Consultants. Off-lease vehicles are a key source of product for the used car market. They are influenced by three main factors: Historical new vehicle sales, the percentage of those sales made through leases and the rate at which consumers buy out their leased vehicles at the end of the term.

In the years leading up to the pandemic, new light vehicle sales peaked in 2017 and remained strong until 2019, with lease penetration rates exceeding 35 per cent. This led to a robust flow of off-lease vehicles into the market, peaking in 2022, according to DesRosier.

However, the onset of the COVID-19 pandemic, followed by semiconductor shortages, caused new light vehicle sales to plummet, with lease penetration rates dropping to just above 20 per cent.

The long-term impact of these disruptions is now being felt, the consultancy reported. The number of off-lease vehicles entering the used market is shrinking and will continue to decline for the next several years. Adding to the supply crunch, more consumers are choosing to buy out their leased vehicles rather than returning them, which further reduces the availability of younger used vehicles in the marketplace.

“Until 2027, the Canadian used vehicle market will contend with a constrained supply of younger used vehicles, impacting the average age of vehicles changing hands and setting a pricing floor for younger used product,” said Andrew King, managing partner at DesRosiers. This shortage is expected to affect not only the volume but also the pricing of used vehicles, with limited supply driving up costs for newer models. With fewer younger vehicles available, the average age of cars being sold is increasing, putting upward pressure on prices and making it harder for consumers to find affordable, relatively new vehicles.

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