While the cost of new cars in Canada continue on an upward trend, the used vehicle market is finally starting to cool according to some experts.
As Canada begins to return to a “new normalcy” from the COVID-19 pandemic, demand for vehicles is balancing out and “prices are dipping,” specifically in the used car market, said Dimitry Anastakis, a professor at the University of Toronto’s history department and the Rotman School of Management.
“We’ve had some crazy politics, some crazy economy, some crazy pandemic, some crazy climate change, and all of that has a real impact on cars,” Anastakis told Global News.
Why are prices of used cars falling?
Vehicle pricing over the past few years has been steep with the industry being hit by global semi conductor chip shortages, exacerbated by the pandemic and Russia‘s war on Ukraine. This left most automotive manufacturers scrambling for parts as they struggled to meet delivery demands for new vehicles. Consequently, prices for used vehicles soared as they were readily available.
However, prices are now slowly on the decline.
“The prices are going down (because) there’s been the lessening of demand,” Anastakis said.
“In the used car market, a key reason prices are going down is because they’ve been so tremendously high since COVID. The auto industry slowed down considerably, which caused a scarcity…so prices went through the roof,” he said. “Now prices are coming down a little bit because some of that pressure has been alleviated.”
Challenges faced by the new car market, including delivery delays, also drove people to choose used vehicles during the pandemic leading to high prices, according to Werner Antweiler, professor of economics at the University of British Columbia’s School of Business.
But now, as also noted by Anastakis, some pandemic obstructions are starting to wear off and demand for used cars is starting to stabilize, Antweiler told Global News. As a result, prices are going down.
“Some of the challenges we saw during the pandemic with deliveries led to people buying more used cars and that has been driving up demand for the lack of supply in the new car market,” he said.
“Now, that is starting to balance out a little bit. It’s getting more back to normal, not quite there, but certainly it’s changing in that direction. And so, some of the pressure is coming off the used cars market.”
What about new cars?
In the new vehicle market, prices are seemingly remaining steep, according to Antweiler.
“We had a significant drop in car sales and as a result of the pandemic, we also had significant challenges to our supply chain. All that contributed to driving the prices up and now during the second half of the year, we have also seen interest rates go up,” he said.
And with interest rates on the rise, purchasing a new vehicle is becoming more expensive and slowing down demand because of the need to finance or lease, Antweiler explained.
“Be mindful of interest rates,” he said. “We are still in a landscape where interest rates are going to be high for the remainder of the year. The higher cost from financing has slowed down demand.”
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At the end of last month, the Bank of Canada delivered another hike into its key interest rate. The central bank raised the rate to 4.5 per cent, an increase of 25 basis point and the highest the Bank of Canada’s key rate has been since 2007.
Moreover, the chip shortage hasn’t entirely passed either, according to Anastakis, so Canadians can still expect prices of new vehicles to remain high.
“There’s been problems in supply which have really led to cause a spike in prices. One of the reasons chip-making is so important is because it fuels the auto industry and because of that chip demand — which was spiked during COVID, because people wanted to buy more digital devices because they’re all at home — there has been a slowdown,” he said.
“You have your phone and it’s got chips in it, but your car has way more chips and there’s such a big demand.”
A look at the electric vehicles market
When it comes to electric vehicles, prices of some makes are starting to balance out with fuel-run cars, according to Josipa Petrunic, president and CEO of the Canadian Urban Transit Research and Innovation Consortium.
In the U.S., Tesla Inc. recently cut prices by nearly 20 per cent on most of its models in an effort to bolster demand and raise market share.
Following that decision, Ford also announced it would be slashing prices on its Mustang Mach-E electric SUV by nearly US$6,000.
“It’s not just that automakers woke up and decided to be environmentalists. That’s not what’s happening,” Petrunic told Global News.
Demand for electric vehicles has largely remained low, but inflation has continued to rise, said Petrunic, so electric vehicle makers are trying to get as many consumers to enter the market before they get priced out.
“What they’re trying to do is price slash to get you into the market to buy these electric cars before inflation and recessionary conditions make it totally unlikely and impossible,” she said. “It’s really automakers seeing the writing on the wall.”
In Canada, automakers may receive federal or provincial rebates if their electric vehicle is priced below a certain price. This is also causing costs to drop, according to Petrunic.
'Way more choice and way more options'
According to Anastakis, the world is at the tip of an “electric vehicle revolution.” With that in mind, he suggests consumers to wait, if they can, before entering the market.
“It took about 25 years for the automobile revolution the first time around to really figure self out. And we’ve already got a lot of the infrastructure for automobiles because we’re not changing them. We’re just changing the way they’re powered,” he said.
According to Antweiler, “the market is changing because of the transition from combustion engine vehicles to electric vehicles.”
“We expect to see a lot more models coming into the market all year or next as manufacturers are gearing up production of electric vehicles,” he said.
But, the first thing to remember when on the market for any type of vehicle is to shop around, Antweiler added.
“Compare different manufacturers on models because there are great differences. It’s always very wise to compare and get all the information you can,” he said.
When buying a used car, it’s important to check the vehicle history report, have the car inspected, take it for a test drive and ensure the proper paperwork is completed upon purchasing, according to a 2021 report from Edmunds, an online car shopping guide.
If you are buying a car from an individual owner, make sure the seller properly transfers the title and registration to you. It’s important to close the deal correctly to avoid after-sale hassles,” the report said.
And for those who are entering the market at this time, Petrunic is cautioning about delivery delays on new cars.
“What I do think is probably here to stay for a relatively elongated period of time is the fact that what you buy may not arrive in the next few months of longer term, she said. Car ownership is unpredictable and expensive and who knows how long our economic constraints will last.”
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