Brace yourself. The average price of a new vehicle hit a record high in Canada in June – $66,288 – up 21 per cent in one year and 47 per cent over four years, according to AutoTrader.ca’s price index report.
That, combined with higher lease and finance rates, has accelerated auto loan delinquencies, prompting one industry expert to predict that drivers will be forced to downgrade their cars and extend the terms of their loans or leases to keep their payments manageable.
“You’re talking about double-digit increases. I don’t think we’ve seen that before,” said Baris Akyurek, vice-president of insights and intelligence at AutoTrader.ca, an online marketplace for new and used vehicles.
Alberta and British Columbia residents paid even more for new vehicles. In Alberta, the average price was $69,764 – an 18-per-cent increase from June, 2022, when it was $59,124. In British Columbia, it was $67,807 – a 19-per-cent increase from last June’s $57,025. Other provinces felt the pinch, too. In Ontario, new vehicle prices reached $64,807 – a 22-per-cent year-over-year rise compared with June, 2022′s $53,136. In Quebec, it was $64,215 – 27 per cent more than June, 2022, when it was $50,461.
As new car prices rise, the financial burden on Canadians keeps growing. The average amount financed for a new vehicle was $53,023 in the fourth quarter of 2022, compared with $42,359 for the same period four years ago, according to consumer research company J.D. Power. At the same time, interest rates for leasing new vehicles rose to 5.5 per cent for the fourth quarter of 2022 from 2.8 per cent in the same quarter of 2018.
With some economists predicting the Bank of Canada will continue to raise rates to tame inflation, there’s likely little relief in sight for Canadians. “I think we’re at a 7-per-cent average interest rate for vehicles. That has [had] an effect, but it hasn’t had [the] effect on demand as we thought it would, yet,” said Charles Bernard, lead economist at the Canadian Automobile Dealers Association, a federation of provincial and regional dealer associations. According to CADA’s 2022 data report, nearly 1.64 million new vehicles were sold across the country in 2022 at 3,430 automobile dealerships. For the end of 2023, Mr. Bernard is predicting sales of 1.7 million units.
In June, 2023, Canadians paid an average of $797 a month on a new car payment. That, too, has skyrocketed 38 per cent from June, 2019, when monthly payments were $577 a month, according to AutoTrader.
The purchase price and the financing rate is adding to the cost of vehicle ownership, said Rebekah Young, head of inclusion and resilience economics at the Bank of Nova Scotia. “Both of those drivers have been on the upswing. There’s not a lot of reprieve for people looking to finance a vehicle in this type of environment,” she said.
Daniel Ross, a senior analyst at Canadian Black Book, which tracks the value of used cars, says the effect of rising interest rates hasn’t really been felt yet. “But if you want to get into a new car with a new payment, it’s going to be a very surprising reality.
“The result will be consumers downgrading their vehicle and elongating their terms of financing or leasing. They’re looking at all avenues to make their monthly payment more palatable once they get into the new car market.”
Some Canadians are already feeling the financial stress of vehicle ownership. Auto loan delinquencies are rising at a much faster rate than other types of credit, according to a recent report from credit-rating agency Equifax.
“We are seeing delinquencies in the auto space ticking up and that adds on to the ability to qualify and the financing rates that consumers could face. Interest rates are high and still going higher and we know that institutions are being more careful now in their lending practices,” said Scotiabank’s Ms. Young.
Despite pent-up demand, low supply and other challenges to the supply chain, including the strike by port workers in British Columbia, new car inventory levels have been increasing, but the numbers are still below prepandemic levels.
“New inventory has been slowly, gradually, moving up. Based on the marketplace data, we’re up by 58 per cent for June, 2023, over June, 2022. But when you compare this data to 2019, we are down by 46 per cent. Despite the fact there has been improvement, we’re still well below 2019 levels,” said AutoTrader’s Mr. Akyurek.
“If you go to a [car dealer’s] lot and you want [a gas-powered] vehicle right now, supply is getting to a point where, most of the time, you’ll be able to get it at a price, to be fair, that is not even close to what the prepandemic prices were,” said CADA’s Mr. Bernard.
Boosting the price of new vehicles over all is the growing demand and tight supply of all-electric and hybrid vehicles, which have longer wait times and are more expensive to manufacture because they require different types of batteries, equipment and minerals.
What might help to ease the financial burden on Canadian car buyers? “Supply needs to catch up to demand. Until that supply-and-demand mismatch solves itself, we’re going to be looking at higher prices,” Mr. Akyurek said.
Once there’s greater supply, he said, “probably we’re going to start seeing some softening. But on the other hand, we do not expect the prices to go back to pre-COVID levels any time soon.”