The price tag for a new vehicle in Canada has hit a record high with a 19 percent year-over-year increase, a new report finds.
The Autotrader.ca Price Index for Sept. 2023 said the average price for a new vehicle is $67,817.
The report says that based on the price, it would take about 55 weeks for an average Canadian to pay for a new vehicle.
While the report also notes there are more new vehicles becoming available, the industry is still “trying to catch up with pent-up demand.”
“Despite these increases, inventory levels are still down compared to pre-COVID levels, hence the record high new vehicle prices, given the continuous demand for new vehicles,” the authors wrote.
The numbers show that those in B.C. and Alberta are paying closer to $70,000 for new vehicles, while those in Atlantic Canada are seeing price tags closer to $62,000.
According to J.D. Power, a data analytics and consumer insights company, there are several reasons the cost of vehicles has been so high, including changes in customer demand, production delays, supply chain disruptions, and quality control issues.
A rise in inflation and interest rates has also led to the current shortage in inventory and high prices, according to Daniel Ross of automotive insights company Canadian Black Book.
Mr. Ross told The Canadian Press that customers started buying up used vehicles when the supply of new vehicles was limited during the pandemic.
“But after the increase of interest rates and inflation as a whole, affordability has become the main concern,” he said.
Mr. Ross said that while the availability of new vehicles is improving, sales are still sporadic.
“With the added effect of higher (market prices), the showrooms are not necessarily seeing as much gravity behind consumers coming to the new car market, as they previously have seen,” Ross said.
It’s something that will impact the entire vehicle sales market, he said.
Mr. Ross said customers usually buy a new vehicle, turning in their original vehicle, which adds to the used car market.
“Recovery stems from the new car market,” he said. “If you don’t have any new cars selling, you’re not going to have any used cars.”
Used Vehicle Market
Prices for used vehicles have been dropping over the past few months, but still remain high year-over-year, the report says.“In September 2023, the average price of a used vehicle remained lower compared to August, at $39,155, marking a 4.3 percent year-over-year rise.”
The cost for a used vehicle is highest in B.C. at $43,000 and drops a little with each province moving east, and Atlantic Canada seeing the lowest price tag for used vehicles at $35,500, according to the report.
Inventories for used vehicles are increasing as sales of new vehicles lead to higher numbers of trade-ins, the report said.
The report’s authors also noted that monthly car payments for used vehicles have risen about 40 percent since the pandemic.
“This can be attributed to several factors, including the rise in vehicle prices and interest rates, implemented to mitigate inflation, as well as heightened demand, coupled with a reduction in inventory levels,” said the report.
It also noted that more used car purchases are done with “cash,” which implies people are using lines of credit or home equity lines of credit to purchase used vehicles.
Prices Surge More for Cars Than SUVs
The report’s authors also noted that prices for cars have increased more year over year than for other types of vehicles.This is attributed to several factors, according to the report.
“This trend is driven by several factors: In the current macroeconomic environment, we are witnessing higher demand for more affordable/fuel-efficient vehicles; manufacturers are producing fewer compact cars due to the trend toward larger vehicles over the past decade; and there are more electric vehicles (EVs) in the compact car segment, which tend to be more expensive than their internal combustion engine (ICE) counterparts,” the report said.
The authors also said that fewer Canadians have indicated they intend to buy a vehicle within the next six months.
“Canadians considering vehicle purchases are evidently influenced by the rising vehicle costs and interest rates, which are closely tied to the prevailing macroeconomic conditions,” the report said. “The year-over-year rise in intentions appears to be driven by the continued optimism among vehicle intenders about their own financial circumstances.”
The Canadian Press contributed to this report.
