The Canadian monthly average vehicle transaction price exceeded $40,000 for the first time in December 2020, according to J.D. Power Canada’s Power Information Network.
December 2020’s average was up 13 per cent from the same month in 2019, when the average transaction price was just under $36,000. This increase represents a “substantial margin,” Robert Karwel, J.D. Power senior manager of automotive, told Automotive News Canada.
“I expected this in Q1 or Q2 [of 2021], but we did it in the last month of the year,” Karwel said. “We saw vehicle pricing spiking in April, then it went down. Ever since the summer it's been creeping back up, and in December it went over the top.”
Karwel said COVID-19 caused several factors that played a role in the increase. The most important is a drop in incentive spending by manufacturers, which reached the lowest monthly figure seen since 2012 in December at an average of approximately $4,500 per unit. This reduction is due in part to inventory constraints, Karwel said.
“Supply is truly tight for a lot of brands,” he said. “There is no reason to incentivize vehicles you don’t have or can’t get enough of.”
A lower cost of borrowing is also contributing to reduced incentive spending, Karwel added, making low- or zero-interest borrowing on 84-month terms readily available to consumers to offset the affordability concerns of higher transaction prices.
While Canadians continued to shift into higher-priced segments as the market moved into a sales split of 84 per cent SUVs and light trucks and 16 per cent cars by the end of 2020, Karwel said that consumers are also increasingly willing to spend more for higher-trim vehicles within those segments. Longer financing terms and low interest rates make the increased cost easier for Canadians to bear as the difference in monthly payments is often manageable. In November 2020, the most recent month for which data is available, the average monthly payment was up only $10 year-over-year despite higher transaction prices.
“If a family is in the market [for] a Ford Explorer, it’s not taking a lot of arm-twisting to get them to buy a Titanium instead of an SEL,” Karwel said.
This higher mix of trims gives the Canadian market an advantage in the fight for allocation.
“A lot of the vehicles we buy aren’t built here, and we’ve got to fight with other markets to get [inventory],” he said. “If we can prove we’re going to take a higher trim mix allocation, the factory will be more likely to send more cars our way.”