Will car prices go back to prepandemic levels any time soon? My partner would like to trade in our five-year-old SUV for something new, but it looks like we’d have to wait months for a new vehicle. With new and used prices still so high, everyone is telling us that it’s a terrible time to buy. I think we should hold on to what we have for the next couple of years. Our SUV is fine, so we don’t urgently need to switch. – Caroline, Montreal

While the new and used car market is slowly cooling, it could take years to see a significant drop in prices – and they may never return to prepandemic levels, an industry analyst said.

“Looking at the forecast four or five years from now, it will be coming down every year, but it’s gradual,” said Daniel Ross, senior automotive analyst at Canadian Black Book, a Markham, Ont.-based company that provides vehicle valuations. “It’s not likely to get to the levels we had seen before the pandemic.”

As automakers cut production of new cars because of a worldwide microchip shortage, buyers who were facing empty lots and lengthy waits for new vehicles turned to used cars instead. In 2021, used car prices went up by an average of 40 per cent, Ross said.

In the past four or five months, used car values have dropped by about 10 per cent, on average. That is partly because higher interest rates are beginning to curb consumer spending, Ross said.

Demand for used cars has declined – though there are still few cars to choose from on many dealer lots – mostly because of the increased cost of borrowing and consumer frustration with high prices.

But that doesn’t mean all used cars are significantly cheaper than they were this time last year, Ross said.

“We’ve seen smaller cars hold their value better while larger cars have seen a higher decline,” Ross said.

There is still strong demand for smaller SUVs and compact cars because the “entry price is cheaper” and they tend to have better gas mileage, Ross said. They’re cars for people who don’t want to spend $40,000 or more on an SUV.

For instance, we looked at national listings on Autotrader.ca, a large online auto marketplace, for the 2017 Honda Fit. The small hatchback had an original suggested price of $15,050 to $23,010. But right now, used models – including several with more than 125,000 kilometres on them – range between $15,795 and $26,380. That is more than the six-year-old cars cost when brand new.

No real deals any time soon?

While automakers could slowly start to get enough parts toward the end of this year to increase car production, they won’t immediately be able to catch up to demand, Ross said.

Plus, with fewer cars being built over the past two years, expect a shortage of used cars from model years 2021, 2022 and 2023.

“We’re starting to edge our way out of this mess, but we’re still seeing issues producing heavy volumes and that will tie into used volume down the road,” Ross said. “We’ve already had two years of really low [production] volume and that means the used market is going to have a suppressed amount of volume three, four and five years from now.”

That shortage will keep used car values elevated and keep demand relatively high – even with these high interest rates, Ross said.

As manufacturing costs have gone up because of the parts shortages, new car prices have been climbing, too. Most manufacturers have been raising suggested prices every year – or even several times a year, Ross said.

“At the high end, we have seen as much as a $10,000 increase in suggested price from one year to the next,” Ross said. “Anecdotally, I purchased a new car in November and the price has already gone up $600 just since then.”

Also, with interest rates so high, it will cost you more to finance a new vehicle.

So, unless you need a car urgently – say, if your car was damaged beyond repair in a crash – it’s probably better to wait, Ross said.

Spending money on service or repairs that will keep your current car on the road longer is “probably the smartest play” for now, he said.

“But our outlook is positive,” he said. “Buyers should have more negotiating room in the next coming years.”

 

Tchir, J. (2023, January 22). Is now a good time to buy a new car, or will prices go down in 2023? The Globe and Mail. Retrieved January 27, 2023, from https://www.theglobeandmail.com/drive/mobility/article-is-now-a-good-time-to-buy-a-new-car-or-will-prices-go-down-in-2023/

Finding affordable and quality vehicles has been difficult for the last couple of years — be it due to semi-conductor shortages or supply chain issues — and according to some industry experts, the Canadian auto market will continue to reflect past trends for most of 2023 before things ease up a bit for consumers.

“We’re in probably year two of a semiconductor shortage that is causing automakers to make fewer cars than they can. And because of that, there’s a squeeze in supply and it’s been pushing prices up,” Flavio Volpe, president of the Automotive Parts Manufacturers Association, told Global News.

The vehicle supply shortages began at the start of the COVID-19 pandemic when demand was forecast to dwindle significantly.

Supply shortage

Gerry Duffy, who teaches supply chain management and logistics at the Southern Alberta Institute of Technology, told Global News last year that when demand picked up for vehicles, supply just couldn’t keep up.

“A lot of the automotive industry is still struggling to get their hands on enough semiconductor material in order to make all of the components that they require to put their cars together,” said Duffy at the time.

The tiny semiconductor chips that have been in short supply are extremely essential — they account for safety functions in vehicles like airbags and brakes, as well as bonus features like GPS or touchscreen entertainment systems.

The shortage of new vehicles also led to a hike in price for the ones that were readily available on lots. Duffy said a quick turnaround time meant a significant uptick from the manufacturer’s suggested retail price (MSRP).

There was an “unprecedented demand for used cars,” said Volpe.

The average price of a used car in Canada now is more than $35,000 — a nearly 50-per cent increase over a year’s time, according to a December report by the Canadian Black Book.

“For the first time in history, the value of used cars has gone up…when usually it’s the most depreciating asset that a consumer can buy,” Volpe said.

Mark McMullenn, the general manager of Mark Wilson’s Better Used Cars in Guelph, Ont., told Global News in April that after his 2019 Ram 2500 was sold to a client for $41,900, McMullen bought it back months later for $2,000 more, despite the client adding 80,000 km to the odometer.

He was then approached by another Onatrio dealer who offered to purchase the Ram at a value of $50,000.

“This is historical. This has never happened,” said McMullen, who manages a business that dates back to 1961. “Never could you buy a vehicle and drive it, and it actually appreciates.”

What to expect from the market?

According to the latest December report by Statistics Canada, sales of motor vehicles fell 3.2 per cent to $3.4 billion in October from last month as lack of materials and microchip shortages continued to plague several auto manufacturers.

“Most experts are predicting that used car prices are going to drop 10 to 20 per cent in 2023. So, if I was advising someone who is buying a car right now, if you have a used car, a newish used car, this is the peak value you’re ever going to get for it on a trade end,” said Volpe.

Contrary to what Volpe suggests, Shari Prymak, senior consultant at Car Help Canada, doesn’t think it’s a good time to be selling used cars.

“A lot of dealerships were struggling for inventory for a long time because of the car shortage. And now we’re seeing a slowdown in terms of used car sales,” said Prymak.

He says dealerships are now likely going to be stuck with cars that they may have overpaid for, and they might have to reduce pricing in order to move them off their lots.

“I think it is going to be a hard time to sell used cars and even sell new cars to some degree because we’re seeing interest rates going up and because interest rates for new car loans and used car loans have gone up by at least a few percentage points, a lot of buyers who intended to buy a few months ago or ordered a car a few months ago may no longer be able to do so because they can’t afford the payments anymore,” said Prymak.

As a result, he thinks there are going to be cancellations of orders in the coming months, which will lead to dealerships seeing slower sales.

Volpe is optimistic and expects prices of new cars to plateau and come down a bit in the coming months.

“I think what consumers can look forward to in 2023 is that we’re going to solve the semiconductor shortage globally, probably in the third and fourth quarter,” said Volpe.

“So that means new cars are going to be made at the capacity of the carmakers actually have. There will be a lot more choice, a lot more inventories,” he added.

Prymak, on the other hand, doesn’t expect any significant changes for the market in 2023.

“The environment that we have right now for car buyers, it’s going to continue this way for most of the new year,” said Prymak.

Expectations will have to ‘change’

Prymak explains that just like in 2022, people can expect not to be able to buy a new car right off the lot from a dealership.

“More often than not, you have to order a car and wait anywhere from a few months to several months for that car to arrive,” Prymak said.

He also says that there’s no longer going to be a best time of the year or month when consumers can get better deals or rebates because, with the major shortage the car markets are experiencing, “these things no longer exist.”

“You can no longer save money by purchasing a car that’s a lightly used one,” said Prymak. “More often than not, lightly used cars cost almost as much as a brand-new car.”

And, that’s because there’s no wait time and consumers can get it right away, he explained.

“The car market has completely changed, and your expectations have to change as well. And you have to understand these things before you shop (or) go to a dealership,” said Prymak.

Is the future electric?

Cara Clairman, president and CEO of Plug’n Drive, a non-profit encouraging electric vehicle use, told The Canadian Press last week that the toughest part of promoting the change from gas-powered vehicles is availability.

“Long waiting lists are definitely discouraging consumers that are ready to make the switch,” she said. “And if we all agree that we’re in a climate emergency, we need to help consumers make the switch as soon as possible.”

Prymak says that the transition to electric cars is “going to be very slow for sure.”

“Electric cars are next to impossible to buy. Most of them have a minimum waiting period of, I would say, eight to 12 months if not longer. Secondly, they’re extremely expensive,” he said.

Prymak explains that most electric vehicles (EV) cost far more than a traditional gas car or even a hybrid car.

“Even though we do see new electric cars that are going to be coming onto the market in the next few years, chances are it’s going to take several years before we see some truly affordable options that average consumers can buy,” he said.

The infrastructure for charging stations will also need to improve, and they would need to be spread across several locations and major cities across Canada, he added.

According to a Statistics Canada report, in the first six months of 2022, sales of fully-electric and plug-in hybrid vehicles made up just 7.2 per cent of new car registrations. For all of 2021, the proportion was 5.2 per cent.

According to Volpe, electric vehicles are also the most affected products in the current market because of semiconductor chip shortage.

“For obvious reasons, you need more semiconductors for vehicles that are electrified,” said Volpe.

But he believes that three years from now, every single lot in every city across Canada will have an electric vehicle option for consumers, but right now “a lot of people are despairing” because EVs aren’t available everywhere.

“We are going to see a dramatic shift in what’s available for people who want an electric vehicle in two or three years, and it’ll never go backward,” said Volpe.

Last week, Minister Steven Guilbeault proposed that one-fifth of all passenger cars, SUVs and trucks sold in Canada in 2026 will need to run on electricity under new regulations.

By 2030, the mandate will hit 60 per cent of all sales and by 2035, every passenger vehicle sold in Canada will need to be electric.

Buying a new car?

Prymak’s advice for consumers when buying a car is time investment. Plan ahead and order the car well in advance if you’re looking to buy new, he said.

“I would encourage consumers to order a car from the factory. That is the best way to get a fair price and not overpay with a heavy markup or… expensive add-ons,” said Prymak.

Another strategy is to get multiple quotes from different dealerships, he said. This will help give an idea of how much a car actually costs.

“Don’t just go to the closest dealership… assuming they’re going to give you a fair deal, because the dealership closest to you might, in fact, be the one that’s charging a lot of extra fees, charging a very large markup, or forcing you to pay for expensive extras,” he said.

“Take the deal from whichever one you feel is offering the (fairest) price, is the most professional and transparent with you, and shop that way,” Prymak said.

Buying a used car? May want to ‘wait’

Shawn Vording, vice-president of product and sales at Carfax Canada, told The Canadian Press in September that it’s important for consumers who are looking at the used car market to do their research and know the vehicle that they are considering.

“Make sure you know the car that you’re buying and so know the history hasn’t had an accident, has it been maintained, know the current condition, is it going to need tires and brakes in the next three months or has this car been reconditioned to a like-new status,” he said.

“If the price doesn’t make sense, there’s probably a reason why and so have an independent third party inspect the vehicle,” Vording added.

If a consumer is looking to finance a used car, Prymak expects that a higher interest rate on car loans is going to make it harder for consumers to afford the payments.

“That’s going to deter some buyers from the market,” he said.

Volpe’s advice, on the other hand, is to wait.

“If you can wait until the second half of 2023, the same car you want will be less expensive than if you wait until the second half of next year. Instead of buying a used car, you’re back in the new car market. Be the first owner and then get the options that you want,” he added.

 

 

Al-Hakim, A. (2022, December 30). Planning to buy a car in 2023? expectations will have to ‘change’, experts caution – national. Global News. Retrieved January 11, 2023, from https://globalnews.ca/news/9356719/canada-market-2023-planning-to-buy-a-car/

 

 

Austerity is a tough word to hear and ugly as a wide-ranging economic policy, but with interest rates rising and a looming recession, it may be time to take a cold hard look in your garage.

Given the high price of owning and driving a vehicle these days, now is a good time to reverse the long-running trend toward large, heavy, expensive and gadget-stuffed vehicles. The benefits will go well beyond saving money, but money’s not a bad place to start.

The average price of a new vehicle hit an all-time high in July: $55,000, according to AutoTrader. There are many reasons for this including high demand and low supply, owing to parts shortages. (And when automakers do get parts, they tend to use them on higher-end vehicles.) As a result, profits at car companies are up and some executives have said that even when supply-chain issues have been resolved, they plan to keep a lid on supply to keep prices afloat.

Used-car prices have dipped slightly, but the average price was still just shy of $38,000 in July, which is 32 per cent higher than at the same time in 2021.

Not only are cars expensive, but borrowing money to buy or lease one is now more expensive too, because the Bank of Canada keeps raising interest rates to keep inflation in check.

One-quarter of new vehicles in Canada are leased, while 57 per cent are financed, said Robert Karwel, senior manager at consumer research firm J.D. Power. Of those financing a new vehicle, 55 per cent of them are borrowing the money over seven or eight years.

“In Canada, monthly payment is king,” Karwel said. Stretching out the term keeps monthly payments lower – making bigger SUVs attainable. But now, with interest rates ranging from about 5 per cent to even 8 per cent on car loans, the cost of borrowing is adding thousands of dollars to the overall vehicle price. For instance, a $40,000 loan at 5 per cent paid monthly over seven years would cost $7,490 in interest. At 8 per cent over eight years, it would cost $14,285 – or an extra $6,795 for the same vehicle.

Terms have been getting longer too. Karwel said it may not be long until we see nine-year finance terms on new cars.

Once you’ve bought the car, you’ve got to run it, and drivers aren’t getting a break there, either. Gas prices are still hovering at about $1.70 a litre after smashing through the $2 barrier this past spring.

In other words, if you’re shopping for a car, it might be a good idea to think hard about what you actually need and consider downsizing. (Small cars can be both practical and fun to drive. My own family car for the summer months is a two-door 1991 BMW 3 Series that – okay, isn’t for everyone – but easily accommodates a baby seat, stroller, two adults and our stuff. Newer compact machines aren’t the penalty boxes they once were either. The latest Honda Civic hatchback, for example, is an incredibly well-rounded automobile.)

Of course, some drivers really do need huge cars. If you have three children, you’re going to want a three-row SUV or a minivan. If you’re a contractor, a full-size pickup may be necessary.

The high costs of car ownership will hit those in the lowest tax brackets the hardest, perhaps even pushing them out of the car market entirely.

But for most other people, buying something smaller and more frugal than the burly vehicles we have become accustomed to could pay dividends.

About 80 per cent of the new-vehicle market consists of SUVs and pickups. Not only are they more expensive to buy and run, but they can be more dangerous to pedestrians in the event of a collision. Bigger vehicles are dirtier too; Canadians drive some of the largest and most-polluting vehicles in the world, on average, according to a 2019 report by the International Energy Agency. So you could save money, save on gas, help the environment (a little) and perhaps even save a pedestrian by downsizing.

When gas prices peaked earlier this year, some dealers saw an influx of people looking to sell their gas-guzzling pickups. Drivers who really needed a truck surely kept them, but drivers who bought a hulking truck as a luxury lifestyle accessory understandably went looking for more economical alternatives.

The large, heavy, powerful and gadget-packed vehicles we have grown to love are – let’s be real – overkill for the vast majority of drivers.

Nevertheless, Karwel doesn’t think high interest rates and the growing cost of cars will reverse the trend toward bigger types of vehicles and longer finance terms.

“No one’s holding a gun to consumers’ heads when they’re buying these things. Vehicles are desire-driven purchases. We want nice things, and we want them well equipped,” Karwel said. Maybe we’re hopelessly addicted to excess.

 

Bubbers, M. (2022, December 13). That big, burly truck or SUV is killing it. your finances, that is. The Globe and Mail. Retrieved January 6, 2023, from https://www.theglobeandmail.com/drive/mobility/article-that-big-burly-truck-or-suv-is-killing-it-your-finances-that-is/