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HomeCanadaPrices are starting to fall at car dealerships. Is it time to...

Prices are starting to fall at car dealerships. Is it time to buy?

For the first time in years, car shoppers are finding it easier to score a deal as the auto industry recovers from supply chain disruptions. Experts predict that the outlook may improve further.

Daniel Ross, senior manager of industry insights at Canadian Black Book, noted that sticker prices at dealerships are starting to decline, and affordability is improving. “The new car market is normalizing faster than the used car market,” he said. “If you’ve been in the market for a new car, this is the best situation you’ve had in a long time.”

As prices for newer models climbed and consumers pulled back on major purchases due to high inflation and rising interest rates, the inventory of new cars has increased nationwide. To clear this supply, manufacturers and dealerships have introduced incentives and rebates.

Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions, explained that dealerships can offer internal financing from manufacturers and control the rates independently from bank rates. “Instead of offering rebates, they lower interest rates, making deals better for the consumer,” he said.

Shari Prymak, a senior consultant at non-profit Car Help Canada, pointed out that vehicle purchases operate differently from home purchases. When financing through a dealership, the interest rate depends on the make or model. “The rates that the manufacturer sets are mainly tied to vehicle availability,” he said. “If there’s a good supply, they’ll incentivize the interest rates and lower them. But if there’s a long waiting period due to limited supply, the rates won’t be incentivized.”

Manufacturer financing rates on new cars could be about five to seven percent without incentives, potentially lower than rates on used cars but still higher than pre-pandemic levels. Prymak added that the used car market’s rate changes align more closely with central bank decisions, but prices remain high.

As vehicle availability improves, more incentives and offers are emerging, enhancing customers’ negotiating power. However, the market isn’t fully corrected and may take another year to normalize.

A TD Bank report published in May indicates that inventory levels will continue to rise, but demand could be influenced by economic headwinds, particularly in the housing sector, as households save to buy homes or keep up with mortgage payments. The bank estimates auto sales will grow by 9.6 percent this year and reach pre-pandemic levels by 2025.

Prymak advised waiting another six months for better deals on new cars, especially for models with tight supply and long wait periods. Asian brands producing hybrid vehicles, like Toyota, Honda, and Hyundai, still have limited supply in Canada and fewer incentives.

Many buyers have postponed vehicle purchases in recent years, opting for repairs and maintenance instead. For those who can’t wait any longer, Prymak recommended choosing a new car with ample supply. North American automakers, including Ford, General Motors, and Stellantis, have larger inventories and may offer better deals and incentives. Luxury European brands like Mercedes, BMW, and Audi could also present good discount options.

Widely available offers on North American brands include cash incentives up to 15 percent off market retail prices on certain models. Discounts on lease rates are also increasing, and negotiating on expenses like warranty, rust protection, or theft protection products can save thousands of dollars.

Prymak suggested researching vehicle models, shopping around for the best quotes, and requesting itemized breakdowns to avoid paying for additional products. “Don’t be afraid to negotiate for a better deal as supply improves and buyers’ negotiating power returns,” he said. The same applies to securing the best interest rate, with manufacturers often offering lower rates on new vehicles compared to banks or lines of credit. For used cars, thorough shopping is essential to find the best financing options.

Ross acknowledged that while the new vehicle market is recovering faster, it still has a long way to go. “It’s a better scenario than it was, but we were coming from a very poor scenario,” he said. “If you’re looking for my car advice, I would say don’t shop yet if you don’t have to.”

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