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February 08, 2018 12:00 AM

Average price of new car rose again last year, but at slower pace

Steve Mertl
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    Greg Layson
    Purchases at motor vehicle and parts dealers were down 0.9 percent due to less spending at new car dealers.

    The average transaction price of new vehicle reached $33,464 in Canada in 2017, up 3.2 per cent from $32,430 in the previous year, according to J.D. Power’s Power Information Network (PIN) year-end review.

    The increase is small compared with the seven per cent increase of more than $2,137 between 2015 and 2016. Overall, the increases continue to be caused by the popularity of expensive light trucks, the research firm says.

    The average truck transaction price last year was $37,345, up 2.4 per cent, while passenger cars averaged $25,110, up 0.9 per cent.

    Incentives also rose by 4.1 per cent to a unit average of $5,990 last year, up from $5,756. But, incentives as a percentage of MSRP rose to 15.4 per cent from 15.3 per cent, year over year.

    “On the surface, incentive growth is marginal, when compared to the rise in transaction pricing,” the report noted. “However two things continue to drive them higher: the cost of borrowing has increased and is predicted to increase, and more incentives are being offered on passenger cars to continue to move these increasingly less-desirable vehicle options.”

    The problem was acutely noticeable in the luxury and premium car segments during the fourth quarter, during which incentives per unit rose 18.5 per cent to $8,457 and 23 per cent to $8,412, respectively.

    “That’s a shocking amount of spending increase,” JDPA Canada senior manager Robert Karwel told Automotive News Canada.

    The average transaction price of luxury cars dipped fractionally.

    The incentive increase reflected the need to move 2017 model year luxury vehicles off dealer lots, often with attractive leasing packages.

    The PIN report also found 53.6 per cent of finance agreements industry-wide were 84 months or longer last year, down from 54.3 per cent in 2016, while 71.5 per cent of lease customers opted for terms of 48 months or more, compared with 71.3 per cent the previous year.

    “Industry lease penetration increased substantially, again, up to 27.5 per cent,” the report said. “This has taken pressure off growth in long-term financing, down for the first time in years.”

    Trade-in equity increased 2.5 per cent to $4,977 from $4,855, while the percentage of vehicle purchasers with negative equity on their trades was 27.6 per cent, down slightly from 28 per cent in 2016.

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