Over 360,000 used vehicles are exported annually over the Canadian border into the United States. This creates a rich ecosystem supporting a $15B+ worth of vehicles flowing in.
It is a large and highly competitive market.
So how should you value used cars for export and aim for the highest profit, while making sure the final price is affordable for the end buyer?
At Signal, we work with a large number of exporters across Canada. One of the topics we get asked about the most has been around best practices on export vehicle appraisals. The objective for exporters obviously is to make a profit, and be competitive against the thousands of wholesale vehicles any US dealer has the option to purchase from in their country. But where do you start?
The following data can help you figure out how to value cars for export, finding your sweet spot between transaction volume and per-unit profit.
Here is an outline of the key components to consider as you determine the price for your vehicles and prepare them for export.
Getting the Price Right
There are plenty of factors that go into ensuring you are appraising motor vehicles profitably for export and international trade. The core elements of the price you need to look into as an exporter are:
- FX (foreign exchange) rate;
- US wholesale pricing;
- Target GPU (“Gross Profit per Unit”);
- Fixed costs of getting the car shipped and prepped, as well the required documentation, customs, and RI (“Registered Importer”) fees.
Getting the Time Right
Time is a critical element, especially in a market where values are declining. Being very diligent with your timing is a major step to avoid getting "burned" on the sale of your vehicle inventory. For example, if you need to do 2 weeks of recon work in Canada prior to export and the 30-day hold required by the US government, you should allow the cost of time as it applies to depreciation in your international trade, and bidding strategy.
Keeping an Eye on the Current FX Rate
Forex has been very volatile going into 2023, and this can make it difficult to figure out what rate to use when bidding. Unless you have a sophisticated FX structure to utilize, there are a few things you can do to achieve some level of protection. In a volatile market, we recommend bidding approximately 2 cents below the current US dollar to Canadian dollar rate. For example, if the current FX rate is 1.3650, try using 1.3450 in your bidding calculation.
If the rate remains constant from when you purchased the car until you sell it, then hurray! You have just increased your GPU. If the rate drops, at least you have some degree of built-in protection.
See the FX rate chart below, showing the USD/CAD volatility of a 3.3-cent swing over a 30-day period ending March 24th, 2023.
Setting the Right Bid Date and Bid Expirations
How do you keep track of your bids?
Do you have a system for bid management? Do you expire your bids?
In a volatile market, it can be very difficult to allow a bid to go beyond a certain time without rebidding a vehicle. Our recommendation to exporting companies is that all bids expire and require rebidding after at most, two weeks. We also encourage companies to adopt a best practice of checking the bid price when the vehicle BoS (Bill of Sale) comes in, in case there is ever a seller error (and there are lots).
Laser-Sharp Fixed Cost Management
Ensuring you make an accurate allowance for your fixed costs or “Pack” at the time of bidding is required to make an accurate bid. Typically, the things we include in the Pack are:
- Logistics / car transport expenses
- Customs fees
- Recon requirements and fees
- Vehicle repair and maintenance costs
Do Not Compromise Your Target GPU
What is the amount of money you have targeted as the profit margin you want to make on each of your exported vehicles?
This varies from exporter to exporter, and is largely based on their unique situation and requirements. Do you have to allow for cost of capital (finance fees) in your GPU calculation? The two main methodologies are percentage of purchase price, or a fixed amount per transaction.
Evaluation of the Current US Wholesale Value
There are many pricing mechanisms Canadian exporters can use to base their bid price on. We typically rely on a combination of factors, however it invariably ends up being a variant of MMR (Manheim Market Report value), with additions and deductions.
You can use typical adds or deductions for condition, trim packages and desirability. However, be realistic with any adds to MMR for desirability: it does not mean a vehicle is worth $5k more just because you feel it is desirable. The objective is to have your vehicles sell fast and hit your target GPU.
In a declining market, you must allow for depreciation and include the depreciation rate in calculating your target sell price. If for example, you look at US Black Book data, you will see that wholesale vehicle indexes have been dropping 50 to 100 basis points per week many times throughout the past 12 months. If you end up owning that vehicle for six weeks, and you use 75 basis points per week as your depreciation factor, you will need to discount the target sell price by 4.5%. That’s a big number, however it is a critical exercise to ensure you remain profitable.
In the Black Book chart below, you can see the volatility in car pricing where in the second half of 2022, prices declined by a whopping 14%. They are on the upswing now, but that won't last forever.
Be realistic and make a true allowance for depreciation of vehicles and how long you may have to hold on to that vehicle before it sells. You should allow at least 6 weeks, and if deprecation levels of vehicles are lower or you hold the vehicle for less than 6 weeks, you get an additional boost to your expected GPU.
Here is a simple method to use for appraising exported cars, working backward from the current US wholesale value to arrive at your CAD bid. This template will help you ensure you are looking at the right data when appraising your vehicles for export.
Get our Export Vehicle Calculator Excel file template to ensure profitable bids on your motor vehicle exports to the US.
At Signal, we want dealers in the used car export ecosystem across both countries to make money and be profitable. That includes you as an exporter/dealer in Canada, your RI partner in the US that is processing your exported vehicles, and finally, US dealers as the ultimate purchasers. Making the imported vehicle trade worthwhile for all begins with a sound vehicle appraisal strategy and methodologies for you as an exporter, and it's vital you stick to the key objective to ensure you do not go underwater when bidding.
Reach out to Signal team for further help and assistance, or to discuss ideas on how to make your Canadian vehicle exports a success. With our automated export system, we help exporters streamline their used car inventory management. We are also introducing new financing options to provide even more value for our Canadian exporters. Get in touch with our team at any time if you'd like to learn more.
If you've found this article, our Export Vehicle Appraisal tips and the calculation template useful, please share it with anyone in the used vehicles ecosystem who you think may benefit!
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