Car Prices Continue to Soar, Putting Strain on Buyers
If you’ve been in the market for a new vehicle lately, the experience has likely been anything but pleasant. The sticker prices are, frankly, shocking. Despite some easing from pandemic-era peaks as supply chains normalized, the reality is that cars are significantly more expensive than they used to be.
Prices have increased by 33% over the past decade, according to Canada’s Consumer Price Index (CPI). Leasing costs have risen even faster, going up by 36% during the same period. The cost of owning a car is also going up, with increases in auto insurance premiums and higher gas prices.
Meanwhile, income hasn’t kept pace. Pre-tax average weekly wages grew by only 29% from 2014 to 2024, according to Statistics Canada data, which is similar to the rate of inflation.
The situation looks even bleaker when we consider the average transaction price (the actual selling price before taxes) for new vehicles. It was $53,100 in 2023, according to DesRosiers Automotive Consultants. That’s up 29% from $41,200 in 2019 and a staggering 59% from $33,400 in 2014. Adjusting for inflation, the increase from 2014 to 2023 is about 30%.
Data from AutoTrader Canada indicates that average new-vehicle asking prices are beginning to soften, dropping to $65,219 at the end of 2024 from a peak of $67,817 in September 2023. However, that’s still a significant amount of money for a vehicle.
An average full-time worker earning around $76,000 a year would need to spend more than their entire after-tax annual income to purchase the average new vehicle listed on AutoTrader. This creates a significant affordability issue.
Consider the price increases of some popular mainstream SUVs:
- The base model Honda CR-V rose 32% to $36,475 in 2023 from $27,690 in 2019.
- The Jeep Wrangler saw the base model increase 31% to $46,220 in 2024 from $35,195 in 2019 before settling back down to $40,700.
- The base model Toyota RAV4 climbed 28% since 2014.
Andrew King, managing director of DesRosiers, noted that technological advancements like larger touchscreens, safety features like automatic emergency braking systems, and backup cameras all contribute to higher prices. He also cited the growing market share of more expensive vehicle types, such as SUVs, electric vehicles, and luxury cars as factors driving up the average price.
Even the Honda Civic, a typically affordable car, is now 44% more expensive than it was in 2014. Still, the more-expensive Honda CR-V SUV handily outsold the Civic sedan last year as drivers overwhelmingly choose larger vehicles.
Prices are, perhaps, the most out of control at the high end of the market. The base Porsche 911 Carrera now starts at $135,600 – and even colored paint costs extra.
“There are signs that consumers have limits,” King said.
Luxury vehicle sales, for example, were down slightly in 2024 compared to the previous year, even while the overall new-vehicle market was up 8.2%.
“Affordability concerns pressed down on the luxury side of the market,” King wrote in an e-mail. At the same time, DesRosiers data show compact SUV sales were up a whopping 20.9%, suggesting drivers are seeking more affordable, practical machines.
Canadian new-vehicle sales last year hit 1.86 million units, according to DesRosiers, which is a nice increase over 2023 but still below the peak.
“The market remains approximately 180 thousand units below its 2017 high, despite a Canadian population that has increased from 36.7 to 41.5 million people over that time,” the company pointed out in a January note.
What the future holds is uncertain due to potential U.S. tariffs, fluctuating electric vehicle incentives, and what many consider an oversaturation of overpriced vehicles. Consumers shouldn’t expect a sudden influx of smaller, more budget-friendly vehicles.
