Why Are Used Cars So Expensive in Canada?
Why Are Used Cars So Expensive in Canada?
Posted on August 20, 2024
The Canadian used car market has experienced a notable increase in prices over the past several years. This phenomenon is a result of a complex interplay of economic, market, and regulatory factors that have collectively contributed to the upward trend.
In this analysis, we will delve into the primary drivers behind the elevated cost of used vehicles in Canada, examining both domestic and international influences. By understanding these factors, consumers can make informed decisions when considering the purchase of a pre-owned vehicle.
- Significant price increases: According to AutoTrader.ca, the average used car price in Canada increased by nearly $9,000 from 2021 to 2023.
- Market trends: Passenger cars saw the largest year-over-year price increase, rising by 8%. SUVs and pickup trucks also experienced price hikes.
- Global factors: The global semiconductor shortage, which disrupted new car production, contributed to increased demand for used vehicles.
- Economic conditions: Rising inflation rates and interest rates have made new car purchases more expensive, further driving demand for used vehicles.
Why Are Used Cars So Expensive in Canada?
1. Supply Chain Disruptions
Global supply chain disruptions have profoundly affected the automotive industry. These disruptions have caused delays in the production and delivery of automotive parts and materials, which in turn has impacted vehicle availability and pricing.
| Disruption Factor | Impact on Car Production | Estimated % Impact on Prices |
| Natural Disasters | Production delays | 10% |
| Geopolitical Tensions | Increased costs of materials | 12% |
| Logistical Challenges | Delivery delays | 15% |
| Labor Shortages | Slowed manufacturing | 10% |
The Canadian Automobile Dealers Association (CADA) reports that approximately 62% of Canadian dealerships faced substantial delays in new vehicle deliveries in 2023. These delays were primarily due to disruptions in the global supply chain, affecting everything from parts procurement to vehicle assembly.
Analysis: The global supply chain issues have led to significant delays in both production and delivery of new vehicles. This has created a bottleneck in the supply of new cars, forcing consumers to turn to the used car market. As a result, the demand for used cars has surged, driving up their prices. Additionally, the increased cost of materials due to supply chain disruptions has been passed on to consumers, further inflating vehicle prices.
2. Semiconductor Shortage
The shortage of semiconductors, which are essential for modern vehicle electronics, has exacerbated the situation in the automotive industry. Semiconductors are critical for functions such as engine control, safety systems, and infotainment. According to Deloitte, the semiconductor shortage resulted in a 10-20% reduction in global car production in 2022. This reduction in production has intensified the competition for available vehicles, thereby increasing the demand for used cars.
Analysis: The semiconductor shortage has had a cascading effect on the automotive industry. With fewer new cars being produced, consumers have turned to the used car market to find available vehicles. This surge in demand, combined with a limited supply of new cars, has driven up prices in the used car market. The lack of new inventory has also led to increased prices for used cars as dealers and sellers capitalize on the scarcity.
3. Pandemic Impact
The COVID-19 pandemic has significantly disrupted the automotive market, affecting everything from manufacturing to consumer behavior. During the pandemic, many manufacturers paused production, and consumer demand became unpredictable. A report by the International Organization of Motor Vehicle Manufacturers (OICA) indicates that global vehicle production fell by 16% in 2020 due to pandemic-related disruptions. In Canada, the automotive sector saw a similar decline in production and sales during the early months of the pandemic.
Analysis: The pandemic led to a significant drop in vehicle production as factories were closed or operated at reduced capacity. At the same time, consumer behavior shifted, with increased interest in personal vehicles for safety and convenience. This combination of reduced supply and increased demand for personal transportation drove up the prices of used cars. The market has struggled to recover from these disruptions, contributing to the ongoing inflation of used car prices.
4. Inflation and Economic Conditions
Inflation and broader economic conditions have also played a role in the rising costs of used cars. As the cost of living increases, so too does the cost of goods, including vehicles. According to Statistics Canada, the Consumer Price Index (CPI) for transportation increased by 7.2% in 2023 compared to the previous year. This increase reflects the broader trend of rising costs across various sectors, including the automotive industry.
Analysis: Inflation has contributed to the overall increase in vehicle prices, including used cars. As the cost of materials, labor, and manufacturing rises, these costs are passed on to consumers. Additionally, economic uncertainty and fluctuating interest rates can affect consumer purchasing power and demand for vehicles, further influencing prices.
Also Read: 12 Best Cheapest Used Cars in Canada
Are Used Cars Really Expensive?
Yes, used cars in Canada have become significantly more expensive in recent years. Several factors have contributed to this trend, including:
- Increased demand: Due to supply chain disruptions and rising new car prices, many people have turned to the used car market, leading to increased demand.
- Rising inflation: Inflation has increased the cost of living in Canada, which has made it more expensive to purchase both new and used cars.
- Tariffs and import taxes: Canada imposes tariffs and import taxes on vehicles, which can increase the price of both new and used cars.
- Limited competition: The Canadian automobile market has fewer automakers and dealerships compared to larger markets, which can lead to higher prices.
As a result of these factors, the average used car price in Canada has reached $39,645, which represents a significant increase compared to just a few years ago.
Which Type of Used Car is More Expensive?
In Canada, the type of used car that tends to be more expensive often includes:
- Luxury Vehicles: Brands like BMW, Mercedes-Benz, and Audi generally have higher resale values.
- Sports Cars: Vehicles like the Ford Mustang or Chevrolet Camaro can retain their value well, especially if they're in good condition and have low mileage.
- SUVs and Crossovers: Popular models from brands like Toyota, Honda, and Subaru often command higher prices due to their practicality and high demand.
- Pickup Trucks: Models like the Ford F-150, Chevrolet Silverado, and Ram 1500 are known for their durability and tend to be more expensive in the used car market.
Also Read: Best Time to Buy a Used Car in Canada
Overall, luxury vehicles and popular SUVs and pickup trucks typically have higher prices in the used car market in Canada.
New vs. Used Car Price
When deciding between a new and used car, understanding the price differences and factors affecting these prices can help make an informed decision. Here's a comparison of new and used car prices in Canada, along with the pros and cons of each option.
| Aspect | New Car | Used Car |
| Price Range | CAD $20,000 - CAD $100,000+ | CAD $5,000 - CAD $50,000+ |
| Depreciation | Rapid depreciation, especially in the first few years | Slower depreciation, value stabilizes after the initial drop |
| Warranty | Full manufacturer warranty | Limited or no warranty |
| Technology | Latest features and advancements | Older technology, may lack modern features |
| Customization | Ability to choose features and colors | Limited to existing options |
| Condition | Brand new, no previous wear and tear | Varies by vehicle, can have wear and tear |
| Maintenance Costs | Typically lower initially | May have higher maintenance costs over time |
| Initial Cost | Higher upfront cost | Lower upfront cost |
| Variety | Limited to current models | Wide range of makes, models, and years |
| Vehicle Type | Average Price (New) | Average Price (Used) | Price Difference (%) |
| Compact Car | $27,500 | $24,000 | -13% |
| Midsize SUV | $45,000 | $41,000 | -9% |
| Full-Size Truck | $65,000 | $58,000 | -11% |
| Electric Vehicle (EV) | $55,000 | $50,000 | -9% |
| Luxury Sedan | $80,000 | $72,000 | -10% |
Potential Changes in the Car Market
The used car market in Canada has experienced a significant upward trend in pricing over the past few years. Several factors, including the global pandemic, supply chain disruptions, and shortages of essential materials like semiconductor chips, have contributed to this rise. As seen in the graph, the average price of used cars in Canada has increased from $20,000 in 2019 to an estimated $31,000 in 2024.
In 2020, used car prices jumped by 12.5%, reaching $22,500 due to a decline in new vehicle production and increased demand for pre-owned vehicles. This trend continued in 2021, with prices climbing to $25,000—a 25% increase from pre-pandemic levels. By 2022, the average price rose even further to $27,500 as supply chain issues persisted and inflation remained high.
In 2023, prices peaked at $30,000 as limited inventory continued to drive demand. Although some market analysts predict a potential stabilization or modest decline in prices, the estimated average price in 2024 still hovers around $31,000, reflecting sustained demand, particularly for fuel-efficient and electric vehicles.
Also Read: 11 Best Used Cars to Buy in Canada Under $20,000
| Year | Average Price (CAD) |
| 2019 | 20,000 |
| 2020 | 22,500 |
| 2021 | $25,000 |
| 2022 | $27,500 |
| 2023 | $30,000 |
| 2024 (Projected) | $31,000 |
The increase in used car prices in Canada is driven by a combination of supply chain disruptions, semiconductor shortages, pandemic impacts, and inflation. While current prices may seem high, understanding these factors provides a clearer picture of the market dynamics. As conditions improve, there may be some relief for buyers in the form of stabilized or slightly reduced prices.
Tabangi Motors is the best used car dealer in Mississauga, Ontario that offers affordable used cars. You can browse our inventory to find your perfect car.
FAQs
1. Are used car prices coming down in Canada?
While used car prices are expected to remain high in the short term, analysts predict a potential decrease of around 10% by late 2024 as supply chain issues and production constraints ease.
2. Should I buy a car now or wait until 2025 in Canada?
If you need a vehicle urgently, buying now might be the best option. However, if you can wait, it may be beneficial to monitor the market for potential price reductions in 2025.
3. What is the average price of a used car in Canada?
As of mid-2024, the average price of a used car in Canada is approximately CAD 35,000, reflecting a significant increase from previous years.