You’ve been told now for two years to wait. Wait until shortages ease for new cars, wait until the used car market settles down, just wait. Two years is a long time, whether you were buying a vehicle because you had to, or even just because you wanted to.
“The APA is recommending consumers wait out the market if they are able to until supply improves a bit in winter 2023, but most people are not interested in that advice,” says APA (Automobile Protection Association) president George Iny. It’s the same message you’ve been hearing from all of us for two years, and it’s frustrating to have to keep delivering it. But this industry — every industry — has never experienced so much turbulence from so many directions at once. Just as we have started to appreciate that COVID will be with us going forward, geopolitical issues have further tipped the scale. Oil prices are skyrocketing; Taiwan is the source of many of those semiconductor chips that every manufacturer is chasing. Disruption in other parts of the world will have an impact on what you’ll be buying for some time to come.
But none of that helps you if you need to purchase a car, regardless of the reason. What should you be doing? If you have a leased vehicle right now, you’re in a good position. Cody Green, based in Vancouver, is the founder and co-CEO of Canada Drives, an online car buying service. “If you have a leased vehicle and can purchase it outright, you likely should, as there’s a strong chance you can buy it for less than its fair market value,” he says. When a seller is telling you to keep your car, it’s likely good advice.
George Iny agrees. “You could be looking at cash in your pocket or money toward your next lease of $2,000 to $5,000 or more, depending on the vehicle and mileage.” That positive equity is a new thing for most of us. Better yet, “if your leased vehicle has accumulated damage, there is a good chance the dealer will absorb it when they take in the vehicle. You can avoid the damage appraisal process which is sometimes stressful and prone to exaggeration,” says Iny. The APA also has a service to help members out.
Chevy Cruze inventory Photo by Getty
What can you expect right now in the new car market? We’ve seen vehicles selling above the MSRP, but it’s still an anchor point. Forget dealer discounts, rebates are much smaller and Iny warns of dealerships “piling on extra charges”. He pulls the lens back and says that “over the next decade, there will be significant upward pressure on the prices of all vehicles to fund the switch to hybrid and EV propulsion. The APA predicts a situation similar to the 1970s, when vehicle prices increased dramatically to pay for the new crash safety and emissions equipment introduced on vehicles.”
As online sales outlets gain a foothold in the market, it shouldn’t be surprising. “I believe the expectations of the Canadian car shopper are going to continue to rise as companies like Canada Drives show there are better and less stressful ways to shop for a vehicle,” says Green. The listed prices of vehicles on these sites can appear high, but for many, the no-haggling, everything-included price coupled in most cases with a return policy, is appealing. Iny notes “if you’re planning a switch to a new plug-in hybrid or EV, the selection and reliability will likely improve significantly if you wait a year or two.” There is an upside to sitting this round out.
The used car market remains hot. Initial predictions that it would crash in a rapid correction as new supply came on line has been tempered by some experts, again noting almost daily developments in things that are impacting the industry. “Like housing, used car prices are totally untethered — up to 50 per cent more than historically for certain models and easily 30 – 40 per cent higher across the board,” says Iny.
But how do you manage both expectations and costs? “Flexibility on size can have multiple cost-saving benefits,” says Green. With gas prices heading into the stratosphere, consider whether that big SUV is really what you need, or simply what you want.
“Don’t follow the crowd when looking for a used vehicle,” Iny suggests. “Since everyone wants a pickup or SUV, consider a compact car or midsize sedan. To stretch your dollar it may be worth going back 5-7 years instead of the old sweet spot at 3-4 years. Most people are not interested in this guidance and favour an SUV or pickup, price be damned.”
A couple of warnings: interest rates are rising, and can be a considerable issue. Check the fine print of advertised manufacturer and dealer finance rates. Iny also cautions that the APA is receiving multiple reports of dealerships forcing buyers to take their in-house financing (they get a cut). It’s illegal and it’s wrong, but you might face a seller who will let you walk because they have a line up of buyers to sell to.
When asked for a statement, OMVIC, Ontario’s sales regulator said, “If an OMVIC-registered dealer or dealership is forcing a consumer to take their financing, OMVIC recommends the consumer walks away and shops elsewhere if they are uncomfortable with this option.” I’ve pressed them to clarify if they would actually act on their registered dealers doing something illegal; I’ll update if they do.
Says Iny: “If you encounter this situation, check what’s available to you via home equity or other line of credit. Tell the dealer you are prepared to finance with them for a year and will pay off the loan and refinance the vehicle yourself afterward. That way they will collect their commission from the lender (called a reserve) and you will be out only one year’s interest at the higher rate. Many dealers will discount the price a bit to allow for your higher interest payment in this situation.”
This is gross, but it’s also the sign of a strong seller’s market they don’t think is going to change anytime soon. It’s no wonder people are searching for other options — take your time, and find a dealer who plays fair.
Keyword: Lorraine Explains: What you need to know to navigate today's murky used vehicle market