Finding affordable and quality vehicles has been difficult for the last couple of years — be it due to semi-conductor shortages or supply chain issues — and according to some industry experts, the Canadian auto market will continue to reflect past trends for most of 2023 before things ease up a bit for consumers.
“We’re in probably year two of a semiconductor shortage that is causing automakers to make fewer cars than they can. And because of that, there’s a squeeze in supply and it’s been pushing prices up,” Flavio Volpe, president of the Automotive Parts Manufacturers Association, told Global News.
The vehicle supply shortages began at the start of the COVID-19 pandemic when demand was forecast to dwindle significantly.
Supply shortage
Gerry Duffy, who teaches supply chain management and logistics at the Southern Alberta Institute of Technology, told Global News last year that when demand picked up for vehicles, supply just couldn’t keep up.
“A lot of the automotive industry is still struggling to get their hands on enough semiconductor material in order to make all of the components that they require to put their cars together,” said Duffy at the time.
The tiny semiconductor chips that have been in short supply are extremely essential — they account for safety functions in vehicles like airbags and brakes, as well as bonus features like GPS or touchscreen entertainment systems.
The shortage of new vehicles also led to a hike in price for the ones that were readily available on lots. Duffy said a quick turnaround time meant a significant uptick from the manufacturer’s suggested retail price (MSRP).
There was an “unprecedented demand for used cars,” said Volpe.
The average price of a used car in Canada now is more than $35,000 — a nearly 50-per cent increase over a year’s time, according to a December report by the Canadian Black Book.
“For the first time in history, the value of used cars has gone up…when usually it’s the most depreciating asset that a consumer can buy,” Volpe said.
Mark McMullenn, the general manager of Mark Wilson’s Better Used Cars in Guelph, Ont., told Global News in April that after his 2019 Ram 2500 was sold to a client for $41,900, McMullen bought it back months later for $2,000 more, despite the client adding 80,000 km to the odometer.
He was then approached by another Onatrio dealer who offered to purchase the Ram at a value of $50,000.
“This is historical. This has never happened,” said McMullen, who manages a business that dates back to 1961. “Never could you buy a vehicle and drive it, and it actually appreciates.”
What to expect from the market?
According to the latest December report by Statistics Canada, sales of motor vehicles fell 3.2 per cent to $3.4 billion in October from last month as lack of materials and microchip shortages continued to plague several auto manufacturers.
“Most experts are predicting that used car prices are going to drop 10 to 20 per cent in 2023. So, if I was advising someone who is buying a car right now, if you have a used car, a newish used car, this is the peak value you’re ever going to get for it on a trade end,” said Volpe.
Contrary to what Volpe suggests, Shari Prymak, senior consultant at Car Help Canada, doesn’t think it’s a good time to be selling used cars.
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“A lot of dealerships were struggling for inventory for a long time because of the car shortage. And now we’re seeing a slowdown in terms of used car sales,” said Prymak.
He says dealerships are now likely going to be stuck with cars that they may have overpaid for, and they might have to reduce pricing in order to move them off their lots.
“I think it is going to be a hard time to sell used cars and even sell new cars to some degree because we’re seeing interest rates going up and because interest rates for new car loans and used car loans have gone up by at least a few percentage points, a lot of buyers who intended to buy a few months ago or ordered a car a few months ago may no longer be able to do so because they can’t afford the payments anymore,” said Prymak.
As a result, he thinks there are going to be cancellations of orders in the coming months, which will lead to dealerships seeing slower sales.
Volpe is optimistic and expects prices of new cars to plateau and come down a bit in the coming months.
“I think what consumers can look forward to in 2023 is that we’re going to solve the semiconductor shortage globally, probably in the third and fourth quarter,” said Volpe.
“So that means new cars are going to be made at the capacity of the carmakers actually have. There will be a lot more choice, a lot more inventories,” he added.
Prymak, on the other hand, doesn’t expect any significant changes for the market in 2023.
“The environment that we have right now for car buyers, it’s going to continue this way for most of the new year,” said Prymak.
Expectations will have to 'change'
Prymak explains that just like in 2022, people can expect not to be able to buy a new car right off the lot from a dealership.
“More often than not, you have to order a car and wait anywhere from a few months to several months for that car to arrive,” Prymak said.
He also says that there’s no longer going to be a best time of the year or month when consumers can get better deals or rebates because, with the major shortage the car markets are experiencing, “these things no longer exist.”
“You can no longer save money by purchasing a car that’s a lightly used one,” said Prymak. “More often than not, lightly used cars cost almost as much as a brand-new car.”
And, that’s because there’s no wait time and consumers can get it right away, he explained.
“The car market has completely changed, and your expectations have to change as well. And you have to understand these things before you shop (or) go to a dealership,” said Prymak.
Is the future electric?
Cara Clairman, president and CEO of Plug’n Drive, a non-profit encouraging electric vehicle use, told The Canadian Press last week that the toughest part of promoting the change from gas-powered vehicles is availability.
“Long waiting lists are definitely discouraging consumers that are ready to make the switch,” she said. “And if we all agree that we’re in a climate emergency, we need to help consumers make the switch as soon as possible.”
Prymak says that the transition to electric cars is “going to be very slow for sure.”
“Electric cars are next to impossible to buy. Most of them have a minimum waiting period of, I would say, eight to 12 months if not longer. Secondly, they’re extremely expensive,” he said.
Prymak explains that most electric vehicles (EV) cost far more than a traditional gas car or even a hybrid car.
“Even though we do see new electric cars that are going to be coming onto the market in the next few years, chances are it’s going to take several years before we see some truly affordable options that average consumers can buy,” he said.
The infrastructure for charging stations will also need to improve, and they would need to be spread across several locations and major cities across Canada, he added.
According to a Statistics Canada report, in the first six months of 2022, sales of fully-electric and plug-in hybrid vehicles made up just 7.2 per cent of new car registrations. For all of 2021, the proportion was 5.2 per cent.
According to Volpe, electric vehicles are also the most affected products in the current market because of semiconductor chip shortage.
“For obvious reasons, you need more semiconductors for vehicles that are electrified,” said Volpe.
But he believes that three years from now, every single lot in every city across Canada will have an electric vehicle option for consumers, but right now “a lot of people are despairing” because EVs aren’t available everywhere.
“We are going to see a dramatic shift in what’s available for people who want an electric vehicle in two or three years, and it’ll never go backward,” said Volpe.
Last week, Minister Steven Guilbeault proposed that one-fifth of all passenger cars, SUVs and trucks sold in Canada in 2026 will need to run on electricity under new regulations.
By 2030, the mandate will hit 60 per cent of all sales and by 2035, every passenger vehicle sold in Canada will need to be electric.
Buying a new car?
Prymak’s advice for consumers when buying a car is time investment. Plan ahead and order the car well in advance if you’re looking to buy new, he said.
“I would encourage consumers to order a car from the factory. That is the best way to get a fair price and not overpay with a heavy markup or… expensive add-ons,” said Prymak.
Another strategy is to get multiple quotes from different dealerships, he said. This will help give an idea of how much a car actually costs.
“Don’t just go to the closest dealership… assuming they’re going to give you a fair deal, because the dealership closest to you might, in fact, be the one that’s charging a lot of extra fees, charging a very large markup, or forcing you to pay for expensive extras,” he said.
“Take the deal from whichever one you feel is offering the (fairest) price, is the most professional and transparent with you, and shop that way,” Prymak said.
Buying a used car? May want to 'wait'
Shawn Vording, vice-president of product and sales at Carfax Canada, told The Canadian Press in September that it’s important for consumers who are looking at the used car market to do their research and know the vehicle that they are considering.
“Make sure you know the car that you’re buying and so know the history hasn’t had an accident, has it been maintained, know the current condition, is it going to need tires and brakes in the next three months or has this car been reconditioned to a like-new status,” he said.
“If the price doesn’t make sense, there’s probably a reason why and so have an independent third party inspect the vehicle,” Vording added.
If a consumer is looking to finance a used car, Prymak expects that a higher interest rate on car loans is going to make it harder for consumers to afford the payments.
“That’s going to deter some buyers from the market,” he said.
Volpe’s advice, on the other hand, is to wait.
“If you can wait until the second half of 2023, the same car you want will be less expensive than if you wait until the second half of next year. Instead of buying a used car, you’re back in the new car market. Be the first owner and then get the options that you want,” he added.
— with files from The Canadian Press, Global’s Jasmine Pazzano, Mike Drolet and Brett Bundale
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