Is Canada’s Love Affair with SUVs Waning?
For decades, Canadians have rocked, rumbled, and rolled through a nationwide love affair with SUVs and pickups. In fact, light truck sales topped 80% of new light vehicle purchases in 2021 confirmed by the experienced staff at Laneway Auto Loans & Sales. But now there are signs that inflation-bumped prices for groceries and gas are slamming the brakes on this passion. In parallel to surging inflation, price hikes for vehicles both old and new are forcing many Canadians to park their dream drives, at least for the foreseeable future.
Cash-Strapped Buyers Seek Fuel Efficiency
In historical terms, buyers have always opted for smaller and more efficient wheels when prices rise at the pump. Today, this downsizing trend is underpinned by a host of new and environmentally responsible EV options. In a post-pandemic world that’s also striving to be more eco-friendly, Canadians have been retooling their approach to how they get around. In a recent Ipsos survey:
- Over a third of the respondents said they will be looking at smaller and more fuel-efficient models, particularly for urban commutes and family runabouts;
- Close to half (46%) of the respondents confirmed that they were planning to buy a new or used vehicle during the next two years. Although a positive indicator, this is still significantly lower than the pre-pandemic Intent to purchase figure of 52%, according to the Canadian Black Book;
- Meanwhile, almost a fifth of these prospective buyers said they are looking for used vehicles. Eager to save at least 20% on initial depreciation, these savvy drivers know that they’ll get more comfort, power, and convenience for their money by buying a pre-loved vehicle.
Supply Chain Shortages Pump Up Car Prices
In early 2020, Canadians were paying an average price of $ 27,029 for a used vehicle; after two years of pandemic-driven economic havoc, they are now forking out close to $ 38,000, according to AutoTrader data. Year over year, that’s close to a mind-boggling 35% increase. For new cars, the hike has been slightly less steep: up 18% to almost $ 55,500. Nevertheless, buyers may still find it hard to get the exact model they want, with long wait times for even basic models. However, Covid is not the only culprit to blame for these surges. Russia’s invasion of Ukraine, rising interest rates, bumpy supply chains, and a faltering global economy have all had massive impacts on the auto industry worldwide. Prices rose by 18% for new sedans, far outweighed by a whopping 40% for used models. Meanwhile, new light trucks rose by a more modest 12%, with second-hand models up only 5.6%. Driven partly by spiking fuel prices, electric vehicle sales took a giant step towards Canada’s 2035 zero-mission mandate, rocketing 567% in mid-2022. However, inventories are temporarily drained at many dealerships along the Eastern Seaboard, with wait times that may be as long as three years, depending on the manufacturer and model.
Statistics Canada Adds Used Cars to Inflation Measurements
The importance of the second-hand vehicle market is now acknowledged by Statistics Canada. Steered by pandemic-prompted changes in consumer behaviour, in June 2022 it added used vehicle prices to the Consumer Price Index. This replaces new vehicle prices, which were previously used as a proxy when calculating contributions to inflation from the second-hand private transportation segment. With pandemic-imposed plant closures and assembly lines hobbled by slowdowns in semiconductor chip production, fewer new vehicles were available on the market. As ride-hungry consumers began snapping up second-hand bargains, used car prices began to rise at rates far faster than factory floor models.
And The Good News Is…
On a positive note, the market experts at Laneway Auto Loans & Sales believe that vehicle prices are already starting to plateau, with supply x demand gaps shrinking across the entire industry. As new car production levels begin to recover, second-hand inventories are building up steadily on websites and used car lots.