Will car prices go back to prepandemic levels any time soon? My partner would like to trade in our five-year-old SUV for something new, but it looks like we’d have to wait months for a new vehicle. With new and used prices still so high, everyone is telling us that it’s a terrible time to buy. I think we should hold on to what we have for the next couple of years. Our SUV is fine, so we don’t urgently need to switch. – Caroline, Montreal
While the new and used car market is slowly cooling, it could take years to see a significant drop in prices – and they may never return to prepandemic levels, an industry analyst said.
“Looking at the forecast four or five years from now, it will be coming down every year, but it’s gradual,” said Daniel Ross, senior automotive analyst at Canadian Black Book, a Markham, Ont.-based company that provides vehicle valuations. “It’s not likely to get to the levels we had seen before the pandemic.”
As automakers cut production of new cars because of a worldwide microchip shortage, buyers who were facing empty lots and lengthy waits for new vehicles turned to used cars instead. In 2021, used car prices went up by an average of 40 per cent, Ross said.
In the past four or five months, used car values have dropped by about 10 per cent, on average. That is partly because higher interest rates are beginning to curb consumer spending, Ross said.
Demand for used cars has declined – though there are still few cars to choose from on many dealer lots – mostly because of the increased cost of borrowing and consumer frustration with high prices.
But that doesn’t mean all used cars are significantly cheaper than they were this time last year, Ross said.
“We’ve seen smaller cars hold their value better while larger cars have seen a higher decline,” Ross said.
There is still strong demand for smaller SUVs and compact cars because the “entry price is cheaper” and they tend to have better gas mileage, Ross said. They’re cars for people who don’t want to spend $40,000 or more on an SUV.
For instance, we looked at national listings on Autotrader.ca, a large online auto marketplace, for the 2017 Honda Fit. The small hatchback had an original suggested price of $15,050 to $23,010. But right now, used models – including several with more than 125,000 kilometres on them – range between $15,795 and $26,380. That is more than the six-year-old cars cost when brand new.
No real deals any time soon?
While automakers could slowly start to get enough parts toward the end of this year to increase car production, they won’t immediately be able to catch up to demand, Ross said.
Plus, with fewer cars being built over the past two years, expect a shortage of used cars from model years 2021, 2022 and 2023.
“We’re starting to edge our way out of this mess, but we’re still seeing issues producing heavy volumes and that will tie into used volume down the road,” Ross said. “We’ve already had two years of really low [production] volume and that means the used market is going to have a suppressed amount of volume three, four and five years from now.”
That shortage will keep used car values elevated and keep demand relatively high – even with these high interest rates, Ross said.
As manufacturing costs have gone up because of the parts shortages, new car prices have been climbing, too. Most manufacturers have been raising suggested prices every year – or even several times a year, Ross said.
“At the high end, we have seen as much as a $10,000 increase in suggested price from one year to the next,” Ross said. “Anecdotally, I purchased a new car in November and the price has already gone up $600 just since then.”
Also, with interest rates so high, it will cost you more to finance a new vehicle.
So, unless you need a car urgently – say, if your car was damaged beyond repair in a crash – it’s probably better to wait, Ross said.
Spending money on service or repairs that will keep your current car on the road longer is “probably the smartest play” for now, he said.
“But our outlook is positive,” he said. “Buyers should have more negotiating room in the next coming years.”
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