From empty dealer lots to sky-high prices, here’s why Canada’s new car market is still a mess | CBC News

Just as it did for nearly every facet of the global economy, the pandemic plunged Canada’s new car market into upheaval, throwing supply and demand completely out of whack.

Factory shutdowns due to COVID-19 made for widespread shortages of parts, filtering down to a historic lack of finished vehicles for sale on dealer lots. And on the demand side, consumers were far less eager to buy what was available, as the economic uncertainty had them holding on to their existing cars far longer than usual.

Three years later, most of the weak links in the supply chain have been fixed, and customers are finally in the mood to buy a new set of wheels again, only to face a new conundrum: prices are higher than they’ve ever been — and that’s if you can even find a car for sale.

Jennifer Nemeth knows this first hand. She was in the market for her dream car, a plug-in Toyota Rav4 Prime, but says she was shocked when her local dealer told her how long she should expect to wait for one.

“‘It’s an eight-year wait,’ he said,” the Edmonton resident told CBC News in an interview. “They literally laughed at us.”

She eventually settled on putting down a deposit for a non plug-in hybrid version of the same car, but was told it, too, would likely be a year away. 

She and her husband patiently waited for more than 11 months with next-to-no news from their dealer, before deciding last month to poke their head into their local Mitsubishi dealership and ask about a hybrid Outlander, another model that had initially caught their eye.

She thought the best-case scenario was that the Mitsubishi wait list was shorter than the Toyota one she was already on, but was amazed to discover the dealer had several models she could take home that day. “I’m thrilled that we actually got one,” she said. “We did not think we would have a vehicle to drive away in — that wasn’t even on our minds because nobody has any.”

Industry wide, that’s been the case. Data from DesRosiers Automotive Consultants shows that in the first quarter of 2023, on average, Canadian new car dealerships only had about 42 per cent of the inventory that they would have had before the pandemic. That’s better than the 19 per cent they were at the same time a year earlier, but still less than half of what could be considered normal.

Huw Williams, head of public affairs for the Canadian Automobile Dealers Association (CADA) says that while things are closer to normal than they’ve been in a while, there are still large gaps in the chain — and they’re often company-specific.

“There are auto makers who — for whatever reason, it’s not even always clear to us — are doing a better job of managing their supply chain,” he said. “But every dealer in the country wants more cars but can’t get them.”

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Prices are sky high

In the uneasy equilibrium between supply and demand, suppliers have the upper hand right now, which is a recipe for higher prices, says Rebekah Young, an economist with Scotiabank who covers the auto industry closely.

According to Young, the average price of a Canadian passenger vehicle is just over $45,000 right now. That figure is up by 30 per cent since 2019, “but it would be misleading to suggest that all car prices skyrocketed in the pandemic,” she said in an interview.

“A big part it was auto makers dedicating their limited supply of components into their most profitable vehicles.”

Semiconductors were in acutely short supply for much of 2020 and 2021, Young says, a situation that impacted the availability of everything from iPhones to fridges and cars.

Instead of cheaper entry level sedans with low margins, auto makers focused on using their limited resources to crank out big, expensive vehicles that are the most profitable to them. While Young says the semiconductor shortage is getting better, it’s still not over, and in the interim, the price of everything from copper and aluminum to rubber, steel and labour is sharply higher than it used to be.

“Energy and material prices are flat now but way up since 2019,” she said. “Friendshoring and rejigging supply chains cost them. If you look at [all these factors] you see the legitimacy of why a car should cost more now.”

Consumers like Nemeth may be happy to buy whatever their local dealer has, but the same can’t be said of that excuse.

“I understand that prices go up and I understand that COVID affected things,” she said. “I believe some of it but I think the dealerships are driving up rates and enjoying it because they can charge whatever they want — they say this is how much it is, and you say ‘yes please’ and wonder if you’re going to get kicked again.”

Situation with EVs even worse

The industry-wide pivot toward electric vehicles isn’t helping bring down high car prices, either. Charles Bernard, an economist with CADA, says anything electric is selling at an especially eye-watering premium.

They’re “more expensive and more complicated to make,” he said. “They need certain materials, certain parts and technological components that weren’t part of the old vehicles.”

Dealers can also charge basically whatever they want for EVs, he said, because consumer demand is there, even if you ask them to wait. “If you ask for a vehicle that is a combustion engine, usually the wait lists are way shorter,” Bernard said.

Nemeth says the floor model of the plug-in Toyota she initially wanted not only was on its way to someone else, it also cost $27,000 more than advertised. Even getting on the list for the non-plug version required a refundable $5,000 deposit above and beyond the sale price.

“It’s because they can,” she said “If the demand is there they can ask whatever they want.”

Young at Scotiabank says she expects supply and demand to come more into balance later this year and into next, but that doesn’t mean prices are going to go back to what they were before.

“Hopefully as we get into 2024, we start to see more normal behaviours in the economy … But I would still say we’re not likely to see prices drop substantially,” she said. “Even if the cost of a new vehicle increases by zero per cent next year, that sticker price is still high for the average Canadian household.”