It’s never been a better time to be a new car buyer
In life there are certain maxims we truly can take for granted: night follows day; lazy summers give way to brutal winters (in Canada, anyway); a decent share of your income will have to be surrendered to tax authorities. I could go on.
Readers can be forgiven for assuming that to this list we can add “prices always rise.” Indeed it seems lately more than ever this is a truism to be cast in stone. And in normal times, for most things, it is true. Thankfully for our industry, the reverse has been the case for many years now. New vehicle prices have been falling steadily since the turn of the century. Ever-tougher competition between a growing number of market players – and several other factors – means it’s the best time in recent history to be a new car shopper in this country.
CADA recently launched a media blitz to remind members of the media and consumers that new car prices are reaching 20-year lows, and the coverage was national in scope. Stories ran in every province in print, radio and TV formats. In a time of economic uncertainty on a global level, the media were happy to report a good-news event from the consumer’s point of view.
The price is right
On average, new vehicle prices are the same today as they were in 1994. A new car that cost $15,000 in that year would set you back that same $15,000 in 2011. This may not sound impressive, but once 17 years of inflation are taken into account, the real savings on new car prices exceed 40 per cent over that time period. That is a remarkable and very rare statistic.
To compare with almost two decades of flat nominal car prices, your electricity bills and child care costs have each increased about 47 per cent since 1994, or a little more than inflation. A piece of frozen chicken will set you back 59 per cent more today than it did in the mid-1990s. And if you prefer real-deal butter instead of laboratory-produced margarine, you’re looking at a 61 per cent price increase for a block of the good stuff since 1994. (Source: CANSIM – Statistics Canada)
Items that increase in price less than overall inflation over time become less expensive in real terms. Items – like those described above – that appreciate faster than inflation become dearer. Those rare products whose prices remain flat over time become deeply discounted as the years go by. Such is the case with new cars in Canada, whose real prices have decreased hugely through the magic of compound interest on two decades of general price and income appreciation throughout the economy.
There are, as always, several factors at play. Ours is an industry that is more competitive than most, and recent decades have seen the entrance of more players into the market.
Consumers, armed with mountains of data at their fingertips, are more informed than ever. They know what they want and what they’re willing to pay. If they don’t get it, they usually just have to walk next door to get another quote. Such intense competition paired with educated consumers can only bring prices down in the long term.
From a macroeconomic perspective, a high Canadian dollar and low interest rates have also exerted downward pressure on new vehicle prices.
It is impossible to know when this trend will reverse itself. But one thing is certain: prices can’t keep going down forever. Factors linked to the competitive nature of the industry are unlikely to go anywhere. However the macroeconomic trends that have contributed to lower prices are tougher to predict. Predicting currency movements is a fool’s errand, but it’s safe to say that interest rates won’t stay where they are forever. One day, in other words, the trend to ever-more affordable new cars will have to flatten out and begin to climb. Whether that happens next week or in ten years is not possible to know.
In the meantime, consumers should take comfort in the knowledge that there are products that defy regular inflationary pressure. Buttering your toast may be 60 per cent more pricey than it was in years past. But over a period of time that’s seen a 40 per cent increase in incomes, that car payment hasn’t moved an inch.
