Getting your hands on a new set of wheels won’t get easier anytime soon

Higher interest rates is the latest challenge facing car dealerships as they grapple with plenty of market hiccups since the pandemic. (Mark J. Terrill/The Associated Press)

After months of navigating supply chain and inventory issues in the new and used vehicle markets, Ontario car dealers are now dealing with another issue — the higher cost of borrowing.

The Bank of Canada has raised interest rates six times since March. Rates have shot up from 0.25 per cent to 3.75 per cent and the bank has warned Canadians, it’s not finished yet.

It means car dealers must grapple with yet another hurdle in an industry that has seen plenty since the pandemic, including the ongoing shortage of semi-conductors — the tiny chips that act like a car’s brains, calibrating everything from fuel injection, to anti-lock brakes, to infotainment systems.

The shortage has upended the vehicle market and driven up the price of used vehicles. Now some dealers say they’re worried rising interest rates may cause people to put off buying a new car as long as they can. 

‘It kind of panics people’

“Every time there’s a jump in the interest rate, it kind of panics people,” said Kamal Zabien, the owner of Cedar Auto, a used car dealership in London, Ont., who’s seen sales decline each time the prime rate creeps up. 

Zabien said the people who finance their cars are less likely to consider replacing their old ones because of higher interest rates. 

“Usually, our rates were five to six per cent, but now they’re eight or nine per cent,” he said. “I think it’s a shock right now.”

Light vehicle sales last month saw the lowest October sales figures in 13 years, according to the latest report from DesRosiers Automotive Consultants. The company said only 121,653 vehicles were sold across the country last month — a drop of 5.3 per cent nationwide, compared to a three per cent drop in Ontario. 

The latest sales report from DesRosiers Automotive Consultants shows Canadian light vehicle sales dipped 5.3 per cent nationwide in October. (DesRosiers Automotive Consultants)

“It’s been a pretty tough time to buy any car, used or new,” said Peter Frise, a University of Windsor automotive engineering professor and associate dean, who studies the vehicle sales market closely to inform the school’s research and development programs. 

He said if the decline in sales continues, it should force prices back down to Earth, especially in the used car market, where a surge in demand caused the price of many cars to be distended beyond their historical norms. 

“The price of 10-year-old used cars was not too far off what the price of those cars are brand new, which doesn’t make sense economically.”

“Make no mistake, the supply change is still a challenge. I think that it will recover,” he said. “We have interest rates going up, and that’s making affordability lower for consumers.”

‘I think it’s stabilized somewhat’

“As the supply of new cars increases, the supply of used cars will increase as well, and that will moderate prices, I think.”

Industry watchers say while interest rates will likely influence some people’s financial decisions at the dealership, it’s more likely to delay their decision than stop it altogether — because few things offer as much convenience as a car. (Nam Y. Huh/The Associated Press)

“I think it’s stabilized somewhat,” said Deborah Beauchamp, a 25-year veteran of the vehicle business who sells new and used cars at Oxford Dodge in London, Ont.

She said while delays still remain for specific makes and models, the wild peaks and valleys that defined the pandemic years are starting to iron themselves out as supply issues get resolved. 

While interest rates will likely influence some people’s financial decisions on the lot, she believes it’s more likely to delay their decision than stop it altogether — because few things offer as much ease and convenience as a car. 

“All in all, I think people are still pretty positive. Hopefully, it stays pretty consistent. Hopefully, our inventory levels keep going in the right direction.” 

 

Butler, C. (2022, November 22). Why getting your hands on a new set of wheels won’t get easier anytime soon | CBC News. CBCnews. Retrieved December 7, 2022, from https://www.cbc.ca/news/canada/london/car-dealers-1.6658937

 

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