Their prices are reaching peaks, but new vehicles continue to find buyers. With resignation, out of obligation or because of business, consumers continue to obtain them. Their ability to pay, however, has limits, and we seem to be getting closer and closer.
“We are going to experience it, because the major increases have just arrived on the 2024 models,” underlines the general director and partner of Beauport Hyundai and Genesis of Quebec, Annie Laliberté. Builders still face demand, so they put little money into subsidized programs (reduced interest rates, rebates, etc.). »
According to the AutoHebdo price index, the average price of a new vehicle reached $67,418 last August, up 20% compared to the same period a year ago. This data should be interpreted with a grain of salt (see other tab). The fact remains that the bill is getting higher and higher.
For example, the gasoline version of the 2024 Hyundai Kona now sells for at least $25,999, compared to $22,649 for the 2023 version. We’re talking about an increase of 15.8%. In a context where demand remains higher than supply, car manufacturers still have the upper hand. Since semiconductors – components found in electronic chips essential to the operation of certain electronic modules – remain difficult to obtain, priority is given to the most profitable, and therefore the most expensive, models.
At the same time, over the years, subcompact cars, more affordable for individuals, such as the Fit (Honda) and Yaris (Toyota), are fewer in number. Nothing to relieve consumer budgets.
“You know, people who take the time to think about it before buying a vehicle, who calculate a first time, a second time and a third time, I understand them,” says Pascal Ste-Marie, owner of Viau Ford in Saint-Rémi and vice-president of the Quebec Association of Manufacturer Dealers.
At this dealership located on the South Shore, approximately 70% of sales are made to business customers such as in the civil engineering, engineering and construction sector. In this niche, explains Mr. Ste-Marie, activity remains vigorous. We are therefore able to absorb the increase in prices and financing costs.
But on the individual side, the pressure is mounting. Financing costs are increasing, and payment terms are increasingly being spread out. On condition of anonymity, dealers, who asked not to be identified for fear of reprisals, expressed concerns to The Press.
The manufacturer must stop thinking that the floodgates are open and that the customer will swallow all this. We have to stay on the ground.
A dealer on condition of anonymity
More expensive and longer
A report published last July by the Corporation of Automobile Retailers Associations (CADA) highlighted that at the end of 2022, the average vehicle financing rate reached 5.8%. The document was written based on data compiled by the American firm JD Power.
Since the start of the year, interest rates have continued to rise. For its part, the average amount of a loan reached $53,023 in the fourth quarter of 2022, compared to $49,594 in 2021 and $42,359 in 2018.
“In terms of financing, we see more over 84 months (seven years), underlines Ian Sam Yue Chi, president and CEO of the Corporation des concessionaires automobiles du Québec (CCAQ). There has always been some, but we are seeing more of them. »
The impact of interest rates goes beyond the selling price of a new vehicle. Some consumers don’t realize it, but adding an option at the time of purchase can have a significant impact on financing costs. CAA-Quebec gives the example of alloy wheels. At around $800, they will cost $966 – or 25% more than the original price – over five years at a 9% interest rate. Just think about it.
The number of transactions is on the rise in the automotive industry, but it has not returned to its pre-pandemic level. This also affects prices, since supply is slow to come close to demand. For example, last July, 140,492 new vehicles were sold in the country. This is more than in 2022, but it is a deficit of around 20% compared to the 173,519 units recorded during the same period in 2019.
“We are currently experiencing fictitious sales growth,” says Mr. Sam Yue Chi. We are not talking about growth, but about supply which has not reached the level of demand. »
Why are individuals still interested in new vehicles when household budgets are under increasing pressure? The reasons are numerous and differ from person to person, observes Charles Bernard, senior economist at CADA, adding that there is no “absolute truth”. Financing costs are increasing, but the “better off still have a lot of savings at their disposal,” he says.
“Some people who were frustrated at not being able to buy during the pandemic are doing so now,” explains the economist. There are also people who cannot wait to get a car, so they take action. »
The economist also believes that many consumers do not have “a clear idea” of the direction in which the economy is heading. They are mixed, he believes.
“We have heard from consumers who find that vehicles are expensive and who say to themselves that if there is a recession, prices will decrease, so they wait,” summarizes Mr. Bernard. Others say to themselves: “We’ve been saying for a year that there’s going to be a recession and it hasn’t happened yet, so what’s the point of waiting?” »
The economist concedes that more and more, the budgets of individuals are “stretched”. With an increase of around 25% in the average loan to finance the purchase of a new vehicle between 2018 and 2022, pressure is increasing on individuals.
Even if the Bank of Canada has just taken a break by choosing not to raise interest rates, previous increases are likely to continue to have an impact over the “next 12 to 18 months,” believes Mr. Bernard. It is during this period that we could observe a change in behavior.
- Average interest rate last June for cash advances for “non-mortgage loans,” which includes auto loans.
Source: Statistics Canada
- Average price of a used vehicle last August. An increase of 4.3% over one year.