TRENDS

By Chris Chase

CANADIAN CAR DEALERS AND SHOPPERS may have flipped their calendars over to a new year, but that doesn’t mean they’ve been able to forget the concerns of the previous 12 months.

Wholesale values are continuing the steady decline we told you about in last fall’s marketplace update. That’s helping make used vehicles more affordable, but now there are other economic forces at play that continue to affect Canadians’ spending power.

Canadian wholesale values falling steadily after Spring 2022 peak

In December 2022, Canadian Black Book’s Used Vehicle Value Retention Index, which takes the temperature of Canada’s used-vehicle wholesale marketplace, hit its lowest mark since the end of 2021, falling to 157.5 points after declining steadily from its record high of 165 points in March 2022.

According to David Robins, Principal Automotive Analyst and Head of Canadian Vehicle Valuations for Canadian Black Book (CBB), rising interest rates and slow improvements in new-vehicle supply have cooled the wholesale market, but those effects have been tempered by an ongoing lack of used-vehicle supply. Since late September 2022, CBB’s average usedvehicle listing price has fallen from $37,350 to about $36,500.

That trend is expected to continue through 2023, according to Daniel Ross, CBB’s Senior Manager of Industry Insights and Residual Value Strategy.

He says used vehicles are currently depreciating at a rate of about two per cent per month.

“It’s usually about 10 to 12 per cent that we see vehicles degrade in value over a typical year,” Ross said in a January 17, 2023, interview with Global News. “We are expecting (something) around that, now that we are getting back to depreciating values instead of values appreciating in the used market.”

As a result, Ross, Robins, and other industry analysts think many car shoppers will put off vehicle purchases to take advantage of those falling values, which could further chill the wholesale market.

U.S. buyers still pressuring the Canadian used-vehicle market

Average wholesale prices for used vehicles have also continued to fall in the U.S. marketplace. December 2022 marked the sixth straight monthly decrease for wholesale values, but those prices remained about 30 per cent higher than they were in late 2019.

As of mid-January 2023, the Canadian dollar was trading at about USD$0.75—a shade higher than it was at last fall’s market update, but not enough of a boost to significantly curtail the number of U.S. buyers travelling to Canadian car auctions. CBB says steady demand for late-model used vehicles in good condition means American dealers are continuing to buy vehicles in Canada for resale at home, and that demand is bolstering wholesale values in Canada.

Semiconductor demand easing, but shortage not over yet

On December 6, 2022, Taiwan Semiconductor Manufacturing Co. (TSMC)—one of the world’s largest chipmakers—announced it had begun building the second of two new microchip factories in Arizona. The first, which has been under construction since 2021, will begin cranking out chips in 2024, with the newly announced plant set to come online in 2026. TSMC’s investment is valued at $40 billion, which the company says is “the largest foreign direct investment in Arizona history and one of the largest . . . in the history of the United States.”

TSMC will produce 600,000 semiconductor chips annually in Arizona. According to a White House representative who spoke to CNBC, that “could meet the entire U.S. demand for chips when they’re completed. . . . We won’t have to rely on anyone else to make the chips we need.”

In a December 20, 2022, Financial Times report, semiconductor manufacturing representatives expressed confidence they will be able to steadily increase chip production capacity this year to meet consumer demand. But that increased capacity won’t erase the chip shortage overnight, thanks to ever-increasing demand for electric vehicles, which are especially reliant on semiconductors. FT spoke to the CEO of U.S.-based chip maker Onsemi, who said the company has already sold out of the silicon carbide chips it makes for EVs “at least to the end of 2023.”

However, others are more optimistic. Peter Voser, chairman of engineering company ABB Ltd., told CNBC in early 2023 he’s optimistic the worst of the semiconductor shortage is over. He said the CHIPS and Science Act—passed by the United States to boost chip production capacity in that country— could actually create an oversupply of semiconductors. ■