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June 08, 2022 08:43 AM

High gas prices aren't influencing car-buying habits, yet

Only 'sustained high gas prices' — and maybe inflation and interest rates — will change purchase plans, says J.D. Power

Steve Mertl
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    GREG LAYSON

    According to CAA, the average price at the pumps as of June 7 ranged from a high of 2.26 a litre in British Columbia to a low of $1.84 in Alberta.

    High fuel costs have yet to influence car-buying behaviour, but that could change if prices remain above $2/litre beyond the summer-vacation driving season.

    “It’s going to take sustained high gas prices for people to start altering their purchase habits and also altering what they intend to do with the vehicle,” said Robert Karwel, senior manager, Automotive Practice Canada at J.D. Power.

    Add sustained high inflation and another jump in interest rates, and “something’s got to give at some point,” Karwel said.

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    The Bank of Canada raised its benchmark interest rate by 50 basis points to 1.5 per cent June and signaled that more hikes are on the way. Inflation, meanwhile, hit 6.8 per cent in April.

    Fuel prices had been increasing for weeks before Russia’s invasion of Ukraine in late February sent them skyward. According to CAA, the average price at the pumps as of June 7 ranged from a high of 2.26 a litre in British Columbia to a low of $1.84 in Alberta. So far, however, fuel prices haven’t had much of a ripple through the automotive market.

    Analysts and dealers say little evidence suggests Canadians are rushing in large numbers to trade their vehicles for thriftier ones, nor are they deferring purchases based solely on fuel costs.

    “In previous gas-price surges, we’ve recognized there’s consumer response,” said Huw Williams, vice-president of public affairs for the Canadian Automobile Dealers Association (CADA).

    “We’re just not picking that up from the marketplace at the moment.”

    WHAT’S EATING SALES? SUPPLIES

    Monthly new-vehicle sales have been sliding since January when year-over-year sales fell 0.6 per cent to 91,411 units, according to DesRosiers Automotive Consultant. But the prime factor appears to be a continued shortfall in vehicle supply to meet pent-up demand. According to U.S.-AutoForecast Solutions, 797,300 than one million vehicles are expected to be axed from North American production this year.

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    Low or nonexistent dealership inventories and left buyers waiting weeks, sometimes months, for delivery.

    Sold orders — customers who’ve placed an order and paid a deposit — are at an all-time high at Jim Pattison Auto Group, said president Bill Harbottle. The group has 28 western Canadian stores selling 16 brands.

    “There is certainly more interest in hybrids and EVs,” Harbottle wrote in an email to Automotive News Canada. “But the sales slowdown is related strictly to product supply, not gasoline prices.”

    At Canada Drives, an online used-car retailer, higher pump prices have led to a substantial jump in searches for electric vehicles and hybrids.

    “There definitely was a wave of interest at that rapid price spike,” said Andrew Hall, Canada Drives’ vice-president of data and analytics.

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    But longer waits for new EVs — already long before the COVID-19 pandemic — and rising used-EV prices make purchasing one more difficult, he said.

    It’s harder to what purchasing decisions people make after searches are made, Hall said. Vehicles listed on Canada Drives are being sold more quickly, however.

    “Where we’ve seen our biggest increases in velocity has been on some of our good-fuel-economy units,” Hall said, and demand for used light trucks is softening.

    Scotiabank’s Global Auto Report for May said North American light-vehicle production is rising as it recovers from the global microchip shortage, but inventories are unlikely to meet pent-up demand for the rest of this year. Scotiabank forecasts about 1.75 million new-vehicle sales for 2022, increasing to 1.92 million for 2023. In 2021, dealers sold 1.66 million vehicles, a seven-per-cent increase over the previous year.

    According to Scotiabank economist Laura Gu, interest rates have risen but appear priced into the market already and likely won’t affect buying decisions.

    Household balance sheets are also in good shape, she said, thanks to a buildup of savings during the pandemic. And consumer sentiment, bolstered by a strong job market, is fairly confident.

    “So that could provide a little buffer in terms of demand,” Gu said.

    Automakers dealing with a limited supply of microchips prioritized production of models with higher profit margins, such as pickups and utility vehicles, Gu said. Yet wholesale prices for the same types in the used market have softened, said James Hancock, director of OEM strategy and analytics at Canadian Black Book. That indicates changes in used-car buyer preferences, he added.

    “In the past few weeks,” he said, “we’ve seen the less-fuel-efficient vehicles, the heavier SUVs and pickup trucks, the prices have come down a little bit more than some of the more fuel-efficient cars.”

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