The Complexities of Vehicle Inventory: Dealership Sentiments and Customer Perceptions

The Canadian market has experienced significant fluctuations in vehicle inventory levels over the past few years. According to data from DesRosiers Automotive Consultants Inc. and the Canadian Automobile Dealers Association (CADA), new vehicle dealers' opinions on inventory levels for Zero Emission Vehicles (ZEVs) and Internal Combustion Engine (ICE) vehicles vary widely.

Dealer Sentiments on Inventory Levels

Q1 2024 shows opinions from new vehicle dealers regarding their inventory levels of ZEVs and ICE go across the board.

ZEV Inventory: A substantial 44.4% of dealers feel they have too much ZEV inventory, while 31.4% believe they have the right amount, and 24.3% feel they don't have enough. ICE Inventory: Conversely, 43.1% of dealers report insufficient ICE inventory. About 32.6% think they have the right amount, and 24.3% indicate they have too much. These contrasting views are fairly indicative of the tension in the market: while ZEVs are becoming more prevalent, dealers are struggling to balance their stock with consumer demand, which still heavily favors ICE vehicles. Unsurprisingly, range anxiety and the lack of a joined power grid system allowing for sufficient charging are big players in why the data shows such a contrast from ICE to ZEV.

Despite some regional variations, the vehicle shortage is a nationwide issue in Canada. The severity of the shortage may differ across areas, but no region is immune. For instance, Atlantic Canada, including Newfoundland and Labrador (NL), has seen some improvement in vehicle inventory since the peak of the pandemic-induced shortages. However, customer demand continues to outstrip supply, leading to extended wait times for new vehicles, often ranging from three to six months.

Customer Perceptions and Realities

Anecdotally, customers may perceive a disconnect when they see certain dealership lots filled with vehicles yet hear consistent complaints about shortages. This can be attributed to several factors:

Regional and Model Variations: While some dealerships appear well-stocked, the availability of specific models, particularly affordable options like compact cars and small SUVs, remains limited. High-demand vehicles often have substantial backlogs, with wait times extending over a year.

Dealership Practices: To cope with the shortages, some dealerships have adopted practices like forced add-ons, markups over MSRP, and prioritizing vehicles for customers willing to pay premiums. These practices can affect the perceived affordability and availability of vehicles for average consumers.

OEM Strategies: OEMs have indicated a preference for maintaining lower inventory levels than pre-pandemic practices. This strategy aims to create a more controlled supply environment but may lead to longer wait times and limited choices for consumers.

Looking at the Path Forward

The journey back to pre-pandemic inventory levels is uncertain. Dealers currently report an average inventory level at 88.4% of their normal pre-pandemic baseline. However, the trend towards lower inventory levels may persist as OEMs and dealerships adjust to new market realities.

The sentiment among dealers regarding ZEVs and ICE vehicles also reflects broader consumer behaviors. As the market shifts from early ZEV adopters to the general population, price sensitivity and hesitancy towards higher-priced vehicles become more evident. Dealers and OEMs will need to work through these challenges carefully, balancing supply with the changing consumer demands.

As the industry moves forward, the key to success will lie in striking the right balance between ZEV and ICE inventories, balancing the consumer demand, while maintaining flexibility to adapt to any unforeseen challenges. Through innovative solutions and a customer-centric approach, dealerships can better manage their inventories and enhance the overall customer experience.

This analysis is based on data from DesRosiers Automotive Consultants Inc. and CADA, which provides valuable insights into the current state of vehicle inventory and dealer sentiments in Canada.

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