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Report Predicts Bright Future for Canadian New-Car Dealers

Most any dealer will tell you, the new- and used-car industries are directly tied to eachother. And IBISWorld's new report on new-car dealers in Canada illustrates this very notion.

The report offers a fresh take on the Canadian new-car dealer's place in the industry and provides predictions for a bright next few years.

In fact, the report noted that the new-car dealer industry faced recessionary declines in 2008 and 2000, "but has since made a u-turn and is expected to maintain positve growth through 2017."

The recession that began in late 2008 hit the new- and used-auto industry hard, with consumer confidence levels failing and dealers feeling the effects.

"Consumers facing unemployment and falling disposable income were reluctant to make discretionary purchases, particularly large ones like new vehicles," IBIS officials noted.

High fuel prices also hindered industry demand.

And with less new cars being bought, new-car dealers were seeing less customer-trade-ins to boost their used inventory.

And since new-car dealers buy used vehicles through auctions and customer trade-ins (among other avenues), mostly selling them at higher margins than new vehicles, the lack of trade-ins in the past five years was evident in dealer lots across the country.

That said, in 2010, the market began to recover, and "so did demand for industry products and services."

"Over the past five years, profit margins have contracted due to price-based competition brought on by contracting demand; in 2007, profit margins averaged about 1.9 percent of revenue for companies in the industry," says IBISWorld industry analyst Radia Amari.

Predictions for a Bright Future

It seems the worst may be behind us, as IBISWorld analysts explained, "New vehicle models, including more fuel-efficient vehicles, lower interest rates, higher home prices and rising consumer confidence are supporting renewed demand for the new-car dealers industry."

According to Amari, these factors, in addition to rising disposable income and employment levels, will further support industry growth during the five years to 2017.

Also, over the next five years, the Canadian government is likely to adopt new fuel-efficiency standards that IBISWorld contends will "require new vehicle introductions that will support demand."

And it seems we might already be seeing the affects of higher oil prices and a consumer market turning their interest towards more fuel-efficient rides.

According to RVI's January Market Update, the used-car price index revealed that small SUVs and compacts led the market this past month, rising by 1.8 percent and 1.4 percent, respectively, since December. On the other hand, midsize SUVs saw the greatest decline in the market, RVI officials reported, falling by a significant 20.1 percent.

Overall, this past month, wholesale values (seasonally adjusted for two- to five-year-old-vehicles) went down 4.6 percent when compared to December, but are up 1.2 percent on a year-over-year basis.