The automotive business has been among the hardest hit by supply chain disruptions, with long waits for new vehicles. Danny Usher, Sales Manager of Galaxy Motors Courtenay, says the main culprit is semi-conductor shortages.
“These tiny elements act as the connectors between conductors, non-conductors and insulators. Every electronic device uses them, so you have phone companies, appliance companies, computer companies and more, all vying for the same small supply,” he says. “The average car has over 1400 semiconductors in it. Industry insiders don’t see an end to the troubles for about another year — provided there are no further shutdowns.”
The semi-conductor shortage has made it extremely difficult to make and purchase new vehicles, and many automotive brands are now looking at two year waits for their higher trim level vehicles. That’s put extra pressure on the used vehicle market as well.
Galaxy Motors Courtenay has dealt exclusively with used vehicles for over 30 years, and Usher says they’re faring better than most dealerships during this challenging time.
“We already had our supply network safely secured when the manufacturing sector was turned upside down. Other than slightly higher costs, nothing really changed for us. We have a team of buyers at the auctions every day and our sales staff are constantly buying used inventory from the public.”
Less depreciation means more money for trade-ins
At Galaxy Motors Courtenay, increased sales are partly due to the shortage of new vehicles, but there are other factors at play.
In the past if you bought a brand-new car, its value could depreciate by as much as 30 per cent the moment you drove off the lot. That’s a lot of negative equity to make up if your vehicle needs change. But with less depreciation in modern used vehicles, more Galaxy customers are seeing positive equity on their trade-ins.
“Several times a month we see people trading in a car they bought three years ago and getting a depreciation of less than a couple thousand dollars. This would have been unheard of before the pandemic. We’ve even seen some people get paid more than their initial purchase price.”
Another factor affecting used vehicle demand is interest rates.
“For people with poor credit who are currently financing a vehicle, it’s been a great time to capitalize on the market and break out of higher interest loans,” Usher says. “Financing a car is one of the fastest ways to improve your credit. But if you’re paying a higher interest rate due to past credit mistakes, you’re now able to refinance at a lower rate — without taking much of a hit on the depreciation.”
Looming Bank of Canada interest hikes are causing some worry across the industry, but in the short-term it’s been good for customers.
“Right now they have low interest rates combined with higher trade values. It will all depend on how high the banks raise the rates and how fast they do so. So come see us soon before they do go up!”