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Driving It Home

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Driving It Home

Canadian car buyers choosing long term financing and leases Add to ...

Canadians have become much pickier about acquiring a new car or light truck, and one reason is surely the slowing economy.

New vehicle sales in Canada were down 2.2 per cent in February, compared with the same month in 2012. Some normally high-flying car companies had a tough month: Toyota down 12.5 per cent, Honda down 26.5 per cent, Mercedes-Benz down 11.4 per cent, Audi down 26.2 per cent and Nissan down 17.7 per cent.

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No one can point to one single reason why the market slowed in February, but at least part of the answer can be found in some numbers supplied by J.D. Power and Associates’ Power Information Network or PIN data. In a nutshell, Canadians seem to be stretching themselves to buy a new vehicle.

The PIN numbers, for instance, show that 63 per cent of buyers who financed a new vehicle in the last 12 months went for a loan term of 72 months or longer. Thus, the percentage of buyers going for an extended loan term has about doubled from 2008. Leasing is also up, now accounting for 18 per cent of new vehicle transactions compared to just three per cent a year ago.

Long loan payments and a spike in leasing suggest Canadians are searching for lower monthly payments on a new ride. Indeed, the typical loan payment is now $560 a month, compared to just over $500 a month for the typical lease. These are not small amounts.

Then there’s this sign that buyers are pushing harder and harder for a good deal: the average transaction price plummeted to $28,500 in February, compared to $31,600 last December. Buyers clearly are demanding big discounts and then still opting to either lease or extend the loan term for many, many years. All are signs of economic issues that are hitting Canadians in 2013 – a year when the economy is slowing and the all-important housing market is in the doldrums.

And even with all the deals and discounts and long-term loans and more affordable lease payments, dealers in Canada are taking longer to “turn” or move a new model off the lot. A year ago (Feb. 2012), the turn rate was 60 days, but in February of this year dealers needed an average of 70 days to move inventory.

Finally, a few words about negative equity. More than one-third of new vehicle buyers (35 per cent) are bringing a trade-in to the deal that is worth less than the outstanding amount on the loan – they are “underwater.” A year ago (Feb 2012), underwater buyers accounted for only 29 per cent of trade-ins.

Together, then, the PIN data suggests Canadians are doing a lot more juggling with their finances to acquire a new ride in 2013. Canada’s economy is not as healthy as it was 12 months ago. Rest assured that dealers and manufacturers will be hard at work finding ways to make a new vehicle more affordable to strapped Canadians. And because of that, buyers can expect to see plenty of good deals and creative payment options as the year unfolds.

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