The time has come to ask a few very simple questions: are Canadians becoming addicted to sales sweeteners? If so, what happens when the rich cash incentives that have become so commonplace dry up? Will new car sales slow, too?
Fair and intriguing questions, especially in light of the numbers. Last year, the average total cash incentive on a new light vehicle came to $5,041.66 or 17.2 per cent of the $29,312 average transaction price, reports J.D. Power and Associates, using data from its Power Information network.
That's about as rich in real dollars as the average in 2013, when the incentive money represented 17.6 per cent of a average transaction price of $28,259 -- or $4,973.58. Thus, for more than two years now, car makers and their dealers have used $5,000 to lure Canadians to pull the trigger on a new ride.
The incentive money certainly lit a fire under buyers. In 2014, Canadians bought a record 1.85 million new cars and light trucks. That sales boom broke the previous all-time record set in 2013. As J.D. Power put it in a note to clients, "the doldrums of the recession years are clearly in the rear-view mirror, albeit perhaps closer than they appear."
We'll call that a cryptic caveat. That is, J.D. Power and auto analyst Dennis DesRosiers of DesRosiers Automotive Consultants both see reasons to be optimistic about what lies ahead for 2015 – but it's a cautious optimism.
On the positive side, J.D. Power points out that the average days to turn – the time a new vehicle sits on a dealer lot – is down to 59 days from 62 days, even as the average transaction price jumped four per cent in 2014, year-over-year.
That is, buyers were willing to pay more for vehicles flying off dealer lots, in relative terms, at least. That's the sign of a healthy market.
Dealers are also making a little more in front-end gross profit: $1,260, or a margin of about 4.3 per cent of the transaction price. Yes, the average dealer margin isn't great, though retailers have other ways to make profits beyond new-car sales – from parts and service to used cars and beyond.
DesRosiers says his firm is sticking to its prediction of a slight increase in Canada's sales total this year, but he would not be shocked if Canadians pull back in 2015, either. Many big factors influence light vehicle sales and some humongous ones remain uncertainties.
For instance, the big drop in the price of oil and its subsequent effect on pump prices has put more cash into drivers' pockets. That's the equivalent of a tax cut or a pay raise for drivers.
However, crashing oil prices are hammering Alberta's economy and sending the provincial deficit soaring. The expected negative impact on Alberta car sales is happening.
Or consider this: what will happen with interest rates this year? No one knows for certain. But given that six of every 10 Canadian car buyers finance their deal, any rise in interest rates surely will prompt some of them to pause and reconsider.
A number of other factors might also impact sales and incentives – from the sinking Canadian dollar to the ongoing crisis in Ukraine to the debt and bailout wrangling between Greece and the European Union and others, including signs that China's economy is slowing. All could hurt economies around the world and consumer confidence, as well.
At this point, it seems fair to suggest that cash incentives – now at an all-time high – are not likely to get richer as 2015 rolls on. Predicting the future is a risky business, but the Canadian buyer looking for a good deal has never seen offers this good for such a long period of time. That's a fact.
It's also a fact that what goes up in the auto incentive world will eventually go down. After years of record sales and sales sweeteners, it is now possible to imagine an end to the good times, though exactly when is tough to predict. Something to ponder, along with these four Deals of the Week.
Deals of the Week consulted with www.unhaggle.com, Car Help Canada, www.carcostcanada.com, and other sources on these offers. As usual, pricing information here is subject to change and dealer discounts vary, so consult your dealer for all the final details, including expiry dates for all offers.
2015 BMW X1 xDrive35i 4WD
- MSRP: $39,990
- Freight, dealer prep, air conditioning tax: $2,230
- Dealer discount (estimated): $1,200
- Factory discount: $500 (Manufacturer incentive)
- Taxable subtotal: $40,520
- Total price with 13 per cent HST: $45,787.60
- All incentives are available with 0.9 per cent financing for 48 or 60 months, or a 4.99 per cent lease rate for 84 months. Or a 1.9 per cent lease rate for 48 months. A 0.75 per cent loyalty reduction rate is available with both lease and finance deals.
2015 Hyundai Tucson 4WD Automatic GLS
- MSRP: $29,499
- Freight, dealer prep, fees and air conditioning tax: $1,895
- Dealer discount (estimated): $1,100
- Factory discount: $2,000 (manufacturer incentive)
- Taxable subtotal: $28,054
- Total price with 13 per cent HST: $31,701.02
- A $1,000 factory incentive is available with zero per cent financing for 48 or 60 months, 1.99 per cent for 84 months. The factory money is not available with a 0.9 per cent lease rate for 48 months, 1.9 per cent for 60 months. A $750 factory incentive and any dealer incentives are available with zero per cent leasing for 48 or 60 months. A 0.25 per cent loyalty reduction is available with finance or lease deals.
2015 Chevrolet Malibu Sedan LTZ 1LZ
- MSRP: $33,100
- Freight, dealer prep, AC tax: $1,785
- Dealer discount (estimated): $1,900
- Factory discount: $4,000 (factory incentive)
- Taxable subtotal: $28,985
- Total price with 13 per cent HST: $32,753.05
- A $2,000 factory incentive and any dealer offers are available with zero per cent finance for 48, 60 or 84 months. A $3,000 factory incentive and any dealer offers are available with a lease rate of 0.5 per cent for 48 months and 1.5 per cent for 60 months.
2015 Kia Sportage 4WD V4 Automatic EX
- MSRP: $30,795
- Freight, PDI, AC tax: $1,800
- Dealer discount (estimated): $830
- Factory discount: $3,000 (manufacturer incentive)
- Taxable subtotal: $28,765
- Total price with 13 per cent HST: $32,504.45
- A $500 factory incentive and any dealer offers are available with zero per cent financing for 48 or 60 months, or 0.99 per cent for 84 months. The factory offer is not available with a 0.9 per cent lease rate or 1.9 per cent for 60 months.
. Calculations based on Ontario customers. Please note that while the information above is accurate at the time of publication, incentives are given at the discretion of individual dealers, and may be changed or discontinued at any time. Where noted, "dealer discounts" are negotiated with the customer on a case-by-case basis. Unhaggle Savings are actual discounts received by Unhaggle customers.
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