July 24, 2017 / 9:22 PM / 3 years ago

Canadian used auto prices soften on loonie surge

MONTREAL (Reuters) - Canada’s used vehicle prices have dropped for the first time in about seven years, June industry data showed, as demand for second-hand autos weakened due to a stronger Canadian dollar and a supply glut in its biggest export market — the United States.

The Canadian Black Book’s index, which tracks the value of an average four-year-old vehicle in Canada, fell 3 percent in June, compared with a 10 percent gain during the same month in 2016, Brian Murphy, vice president, research and editorial, said.

If prices continue to soften, the trend could weigh on Canada’s record-breaking auto sales as the price gap between new and used models widens and consumers have less equity in old models to trade in for new vehicles, industry experts say.

Unlike the United States, where demand for new vehicles has slowed in recent months, automakers like Ford Motor Co (F.N), and General Motors Co (GM.N) have enjoyed strong sales in Canada during the first half of 2017, with Scotiabank forecasting the sale of a record 2 million units for the entire industry this year.

Canadian used auto sales have also strengthened in recent years, fueled by a weaker loonie and strong demand from the United States.

But that trend, which boosted second-hand auto prices, is now reversing, experts say. The loonie traded at 80 U.S. cents on Monday afternoon, a 14-month high, and American buyers are enjoying more choices at home as a growing supply of off-lease vehicles rolls into the market.

“There are still buyers going to Canada, but now they can pretty much find the vehicles in the United States,” said Tom Kontos, chief economist for KAR Auction Services (KAR.N), which owns ADESA wholesale auto auctions.

Canadian Black Book expects that a loonie valued at 85 U.S. cents is around the tipping point for exports to significantly slow to the United States.

The dollar value of second-hand auto exports dropped by about 17 percent to C$1.2 billion ($958 million) during the first five months of 2017, on an annual basis, after years of gains, according to the most recent data from Statistics Canada.

And according to previously unpublished figures from ADESA Canada, which operates the country’s largest wholesale second-hand vehicle auction, purchases of autos by U.S. buyers declined by 24 percent this June, compared with the same month in 2016.

Reporting By Allison Lampert; Editing by Tom Brown

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