The popularity of retail leasing in Canada over the past five years is expected to result in a flood of off-lease vehicles there in 1999.
However, a three-fold increase in used-vehicle imports to the United States may take some pressure off the Canadian automotive industry.
As many as 350,000 off-lease vehicles could reach the market this year in Canada, according to DesRosiers Automotive Consultants Inc. in Toronto, more than three times as many as in 1995.
The glut of vehicles presents a major challenge to automakers, which control about 80 percent of the lease market in Canada through their captive finance companies.
For U.S. dealers and licensed vehicle importers, however, it presents an opportunity. A weak Canadian dollar and conformity between U.S. and Canadian vehicle standards have American businesses flocking to Canada, looking for used-car deals.
During 1998, more than 75,000 used vehicles were imported to the United States from Canada, up from almost 24,000 the year before, according to the U.S. National Highway Traffic Safety Administration. The vehicles must be brought in through registered import companies that NHTSA oversees.
During the first two months of 1999 alone, registered importers brought about 21,000 Canadian used vehicles to America, NHTSA said.
In the United States, where nearly 40 million used vehicles were sold last year, the effect is minimal.
'We could have hundreds and thousands of vehicles go south, and it represents a flyspeck in the U.S. market,' said Dennis DesRosiers, president of DesRosiers Automotive.
In Canada, where DesRosiers estimates 3.2 million used vehicles were sold last year, shipping vehicles to the United States could make a significant difference in wholesale prices and vehicle availability.
Leasing took off in Canada in 1993 and has become even more popular than in the United States. In 1992, only 11 percent of new vehicles in Canada were leased. Last year about 40 percent of new vehicles in Canada were leased, compared with about 30 percent in the United States, according to DesRosiers.
'We suspect off-lease volumes are about to explode,' he said. 'This is the telltale year.'
DesRosiers estimates 320,000 to 325,000 off-lease vehicles could come back on the market in 1999, compared with about 270,000 in 1998 and just 100,000 in 1995.
DEALING WITH THE GLUT
DesRosiers and others believe the United States will play a big role in keeping wholesale values strong and minimizing residual losses for automakers, despite the off-lease glut.
'The exchange rate is the key to making it happen,' said Ricky Beggs, editor in chief of Black Book in Gainesville, Ga. Black Book estimates wholesale values for used vehicles in the United States and Canada.
With the Canadian dollar worth about 65 cents American, a clean four-door 1998 Ford Explorer XLT with four-wheel drive can be purchased at a Canadian auction for about $3,100 less than at an American auction, according to Black Book wholesale price estimates.
Registered importers say the margin is much smaller because of growing demand for vehicles, import duties and conversion costs. Conversion costs, which include getting the vehicle titled and converting the odometer from kilometers to miles, can range between $500 and $1,500, according to Superior Auto Sales, a registered importer in Hamburg, N.Y.
But even with those costs, Superior, which has imported 22,000 vehicles from Canada since 1979, still finds the import business profitable.
'You've got to make sure you bring in vehicles that are hot, not just run-of-the-mill automobiles,' said Superior President Richard Izzo.
Others hope to cash in on Canadian imports. Last week, Adesa Corp., the Indianapolis-based auction chain, announced its affiliate, Professional Auto Remarketing Services of Indianapolis, has applied to be a registered importer and soon will begin shipping Canadian vehicles to the United States for its customers, primarily fleet and finance companies.
TOUGHER ON CANADIANS
The flow of vehicles to the United States may be a blessing for remarketers desperate to get rid of vehicles and U.S. dealers desperate for product, but for Canadian dealers it is a different story. Many find themselves competing with more and more American dealers and the strong American dollar at Canadian auctions.
'The prices are higher and the supply for Canadian dealers is tighter,' said Huw Williams, director of public affairs for the Canadian Automobile Dealers Association in Ottawa.
Manheim Auctions Inc.'s auction in Toronto is seeing more Americans at its weekly sales. Brad Hart, general manager of the Toronto auction, says about 10 percent of the vehicles sold there go to the United States.
Many of those vehicles show up at Adesa's auction in Buffalo, N.Y.
Said Warren Clauss, general manager of the Buffalo auction: 'All of a sudden, the best-kept secret is out.'