A sign advertising used vehicles is seen in Kanata, Ont. on April 13, 2022.Spencer Colby/The Globe and Mail
Drivers, start your loan applications: The average price for a vehicle in Canada is rising fast.
According to AutoTrader.ca, an online marketplace for new and used vehicles, new vehicle prices rose 21 per cent in June on an annual basis to $66,288 and used prices rose 4 per cent to $39,645. However, used prices have risen about 53 per cent since June, 2020, and as prices rise, it’s becoming harder for drivers to find a car for less than $20,000.
Baris Akyurek, vice-president of insights and intelligence at AutoTrader, said that in the first quarter of 2023, the share of used vehicles that sold for less than $20,000 was 30.6 per cent. That compares with 60.5 per cent just five years ago.
About 1.3 million fewer new cars entered the market between 2020 and 2022, which affected the number of used vehicles for sale – and their prices. Compared with May 2020, there’s been a 57-per-cent decline in the volume of used vehicles below $20,000, according to Akyurek. And those vehicles are often older models with high mileage.
Average price of a new car tops $66,000 as drivers wrestle with ‘a very surprising reality’
The top five used vehicles that sold for less than $20,000 in the beginning of 2023 on AutoTrader were the Hyundai Elantra (1999-2023, with average mileage of 122,204 kilometres), the Ford Escape (2001-2022, average mileage 154,740 kilometres), the Mazda 3 (2004-2021, average mileage of 135,873 kilometres), the Dodge Grand Caravan (1999-2022, with average mileage of 145,776 kilometres) and the Chevrolet Cruze (2011-2019, with average mileage of 108,090 kilometres).
“Anyone hoping that the used-vehicle market will become more predictable or even right-size itself in 2023 will likely be disappointed,” Akyurek said. “Unique market conditions and a slew of new challenges are reshaping the used market in unexpected ways.”
High demand, a steep decline in supply, fewer lease returns and the impact of pandemic-related manufacturing challenges are still being felt in the market. As a result, “the used-vehicle market is expected to remain competitive with the tandem of reduced volume and high demand keeping prices elevated,” Akyurek said.
While prices may be climbing, cars are also lasting longer these days and are packed with technological advancements, including many safety features that rely on cameras and sensors. The average mileage a vehicle runs for is about 322,000 kilometres, which translates into 10 to 12 years, according to BrokerLink Communications.
“The biggest value now is to keep up your current vehicle,” said Daniel Ross, a senior automotive analyst at Canadian Black Book, a Markham, Ont.-based company that tracks and forecasts used car prices. “The one they have is worth a lot, so why not drive it?”
Other reasons for used car inflation include economic uncertainty, rising interest rates and larger loan payments. “Prepandemic, the average buyer wouldn’t need a loan to get a used vehicle. Arguably, now, the average Canadian likely would need financing to purchase a used vehicle because they’re unlikely to find those price points from pre-pandemic where you had cash on hand to buy it,” said Rebekah Young, head of inclusion and resilience economics at Bank of Nova Scotia.
According to a recent Equifax report, loans for used vehicles are 31-per-cent higher than three years ago. The average bank loan for a used vehicle is $34,000; interest rates on those loans have also increased to 8 to 10 per cent from 4 to 7 per cent in the past three years.
Many new-car lease terms are longer too, affecting used car supply and prices. “Traditional, short, 48-month leases are being replaced with longer 84-month contracts,” said Ross of Canadian Black Book. “Keeping a car for 84 months, as opposed to 72 or 60, obviously will also influence the supply down the road if everyone is holding onto their cars.”
Price relief could arrive if and when automakers reignite incentives on new vehicles, Akyurek said. “But for now, discounting remains limited. And with the fragility of today’s pesky supply chains, any discounting out there may not make a significant impact in the near term.”
If incentives came back and lowered the prices of new cars, that would also decrease used car values. But with sales going gangbusters as it is, “manufacturers aren’t likely to incentivize vehicles when they don’t have to. It costs them more money,” Ross said.
So what might help?
“We need more vehicles to be produced. … And there’s an obligation on manufacturers to make affordable cars for the market, and they’re not doing that any more,” Ross said.
Not that the blame falls entirely on manufacturers. Buyers are at fault too, he said, because they’re demanding larger vehicles with more capacity and better performance, which are more expensive to produce.
“I’m afraid the normal that we knew might be long gone because new car prices are so high now. Those new car prices might be the new used car prices.”
Scotiabank’s Rebekah Young was of a similar mind, saying supply still hasn’t caught up to demand, and probably won’t for some time. “We’re not likely to see massive corrections in pricing in either market [used or new] any time soon.”