If you're looking to buy a vehicle, brace yourself for high prices, fewer incentives and sky-high monthly payments.
"The market today is still challenging for consumers," Robert Karwel, senior manager at JD Power's Canadian automotive group, said in an interview with Yahoo Finance Canada.
"If you're shopping for a new car, it is still pretty tough out there. Prices are high, they are growing in some cases – which is shocking – and interest rates have caught up with us which means payments are sky high."
The cost of a new vehicle may have come down from the peaks reached at the height of the COVID-19 pandemic, but ongoing supply constraints due in part to a continuing semiconductor shortage and inflation have kept prices well above pre-pandemic levels. According to Autotrader.ca's price index for the first quarter of the year, the average price of a new vehicle came in at $61,821, while used vehicles cost an average of $39,235. The online vehicle marketplace cited low inventory levels, pent-up demand and uneven inventory levels across manufacturers as factors driving the significantly high prices.
A recent survey of Canadian car dealers conducted by DesRosiers Automotive Consultants and the Canadian Auto Dealers Association found that overall dealer inventory levels in the first quarter of the year were at 42 per cent of pre-pandemic levels. That's an improvement from last year, when overall inventory levels were 19 per cent of pre-pandemic levels, but a sign that new vehicle supply remains constrained. The survey also found that the recovery in vehicle supply is uneven across the country, with Ontario faring better in terms of the average number of vehicles on the dealer lots than Manitoba and Saskatchewan.
"New vehicle inventory challenges continue, and the improvements seen in recent months have not been shared evenly by all," DesRosiers managing partner Andrew King said in a news release.
Making things potentially even more challenging for new and current car owners is the rapid rise in interest rates. According to JD Power's most recent automotive market metrics report, the average monthly loan payment for a new car has reached nearly $900. Karwel says that for 18 of the 31 car brands monitored by JD Power in Canada, the average financing payment has hit a whopping $1,000 a month on average.
"And there aren't 18 luxury brands in the market," Karwel said.
"There's now a number of non-luxury brands where the average has surpassed the four-figure range."
Prices are up, while incentives are down
At the same time, with demand high and supply constrained, car dealers have no pressing reasons to offer any incentives.
"If you haven't bought a car in a while, don't expect to be treated to some high incentive level for your vehicle, or get some discount from the dealer," David Robins, principal automotive analyst and head of Canadian vehicle valuations at Canadian Black Book, said in an interview.
"If you're not going to buy the vehicle that they have available on the lot, there's a very good chance there's a line forming behind you of people that are willing to pay the sticker price for it."
Karwel notes that it's not the erosion of incentives that is raising prices for consumers. Manufacturers are charging more for their vehicles due to rising cost of goods and labour. The only vehicle segment where Karwel says incentives are coming back is the full-size pickup truck and SUV market, where the average monthly payment is significantly higher due to the transaction price.
Used car prices also remain elevated. While they have also dropped from pandemic highs, the fall has not been significant. In fact, Robins says there are some used vehicles where new models have a long waitlist that are selling for significantly more than the MSRP price.
In terms of how long consumers may have to wait for a car, if at all, it will depend on the vehicle make, says Robins.
"It's really going to be dependent on the manufacturer, and the vehicle segment that you are looking to buy. Some manufacturers are doing a little bit better with their supply than others," Robins said.
When the market will improve in terms of supply remains to be seen. The DesRosiers/CADA survey found that 14 per cent of dealers expect significant improvements in the first half of the year, 37 per cent expect the situation to get better by the second half of 2023, but 49 per cent say it won't happen until some time in 2024.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.