An increase in off-lease terminations and a heavy supply of trucks imported from Canada, coupled with a softening of retail demand, has accelerated vehicle depreciation in October. Auctions in the Pacific Northwest and across the northern tier of the U.S. have seen a healthy influx of Canadian units over the past two years as a result of a softening economy in western Canada and a weak Canadian dollar.
As the remarketing industry in the region experiences its annual fourth quarter downturn, auctions are well positioned to handle the increased numbers by aggressively pursuing in-lane and online sales channels to serve their customers, said Bob McConkey who operates DAA Northwest and DAA Seattle as well as KCI Auto Auction in Kansas City, Mo.
"The forecasts have been there for a huge increase in off lease volumes in 2016, and most expected it to adversely affect the market much earlier in the year," McConkey said. "Until October, we were handling the volumes with little change in conversion rate. We did see a slowdown in October, which is typical. The retail market is still there to support the increased volumes. We are not panicking. What we are experiencing is a more typical fall market adjustment, like the ones we experienced before the great recession of 2008 and 2009 that resulted in a real pinch in used-car supply."
Overall, used car volume has increased about 35% from 2009, when the country faced its worst recession since the 1930s. DAA Northwest will sell about 55,000 units this year, which is up nearly 15% from the 48,000 that moved through the lanes in 2015 and up 57% from the 35,000 in 2011.
Much of higher depreciation has hit the 2015 and 2016 models. This should be expected as new car sales soften and rebates increase, especially with luxury cars and SUVs. Luxury models from 2013 and newer have been effected the most, McConkey said.
Truck demand has remained strong in the region with imported vehicles from Canada bringing "a huge upswing" for McConkey's auctions this year.
"It's really across the northern tier of the U.S.," he said. "It's a bunch of extra supply for very vital demand. To have that extra volume available has really been good."
The influx has been driven by a Canadian recession and sharp decline in the Canadian dollar in the past three years, as sellers seek to exploit the arbitrage of the exchange rate. The Canadian dollar fell to $1.346 on Nov. 21 from $1.029 on Oct. 22, 2013 versus the U.S. dollar, according to XE.com.
"That deviation between the two currencies has created an onslaught of vehicles crossing the border," McConkey said.
Corporate and OEM consignors send large volumes of rentals and off-lease units to DAANW and DAA Seattle from as far away as California, Hawaii, Alaska as well as the East Coast. Activity from truck buyers in Alaska usually ramps up between February and July, he said.
About 65% of the volume handled by the McConkey Auction Group comes from dealer consigners as trade-ins and Canadian trucks, while the remaining 35% is divided off-lease vehicles from OEMs (about 60%) as well as commercial fleet vehicles and repossessions (about 40%).
Editor's note: This is part of an ongoing series that goes beyond the numbers to provide a snapshot of market conditions in the vehicle remarketing industry in the Northeast, Southeast, Midwest, Southwest, Rocky Mountain and Pacific regions. The Pacific region includes Alaska, California, Hawaii, Oregon, and Washington.