Vehicle supply building. Prices are going down. Is it time to buy a new car?

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For the first time in years, it’s easier for car buyers to find a good deal as the auto industry recovers from supply chain problems — and experts say the outlook could improve.

Sticker prices at auto dealerships have started to come down and affordability has improved, said Daniel Ross, senior director of industry insights at Canadian Black Book.

“The new car market is coming back to normal faster than the used car market,” he said. “You have the inventory, you have the incentives depending on where you shop, and if you’re a new car shopper from the start, this is the best position you’ve been in for a long time.”

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New-car inventories have piled up across the country as prices for newer models have risen and consumers have backed off from big purchases amid rising inflation and interest rates. Now, manufacturers and dealers are offering incentives and discounts in an attempt to clear the supply.

For new cars, dealers can offer in-house financing from manufacturers and control prices independently of banks, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.

“Instead of offering discounts, they lower interest rates, making the deals better for the consumer.”

Homeowners are watching every move by the Bank of Canada in hopes of lowering interest rates, but buying a car works a little differently, says Shari Primack, senior adviser at the nonprofit Car Help Canada. When financing through a car dealership, the interest rate depends on the make or model.

“The prices set by the manufacturer are mainly linked to the availability of the car,” he added.

“If vehicles are available in large quantities, that will stimulate interest rates and lower them. But if there is no supply of vehicles, and if the waiting period is long, because of a shortage of them, then prices will not be stimulated,” Primack said.

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Manufacturers’ financing rates for new cars could range from 5% to 7% without incentives, which may be lower than rates on used cars but still higher than pre-pandemic levels. The used car market, on the other hand, may see price changes in line with central bank decisions, but prices remain high, Primack added.

He added that as vehicle availability continues to improve, more incentives and offers are being offered to customers, increasing their negotiating power.

But the market has not fully corrected yet and it may take another year before it returns to normal.

A report from TD Bank in May showed that inventory levels will continue to rise, but demand could be affected by economic headwinds, particularly in the housing sector, where headwinds could weigh on sales as more families save to buy a home or keep up with mortgage payments. The bank estimates that auto sales will grow 9.6 percent this year and reach pre-pandemic levels in 2025.

Primack suggested it would be ideal to wait another six months to get a better deal on new cars – especially for cars where supply is tighter, waiting periods are longer and manufacturers won’t offer good incentives.

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Asian brands that make hybrid vehicles like Toyota, Honda and Hyundai still have limited supplies in Canada, so there will be fewer incentives.

Many potential buyers have held off on car purchases over the past few years — instead spending on repairs and maintenance to keep their old vehicles running. But for consumers who can’t wait any longer, Primack suggested buying a new car, which is available in large quantities.

North American automakers including Ford, General Motors and Stellantis have larger inventory and may offer better deals and incentives to customers, Primack said. European luxury brands including Mercedes, BMW and Audi could also be good options for discounts.

Among the offers that are gaining widespread attention from North American brands are cash incentives on certain vehicle models, which can reach 15% of the market retail price. Discounts on lease rates are also increasing. Meanwhile, negotiating expenses such as warranties on rust-proofing or theft-proofing products can save thousands of dollars.

Primack suggests researching vehicle models, shopping around for the best quote from the dealership beforehand and asking for a price breakdown to make sure the shopper isn’t paying for extra products.

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“Don’t be afraid to negotiate with them to get a better deal because the supply is improving and the buyer’s bargaining power is slowly starting to return,” he added.

“Take advantage of it.”

The same idea applies when shopping for the best interest rate. For new cars, manufacturers often have lower interest rates than a bank or line of credit. But for used cars, shopping around is key to finding the best bank or credit option.

While the new vehicle market is recovering faster overall, Ross said it still has a long way to go and remains mixed at best.

“It’s a better scenario than it was – but we were coming from a very bad scenario,” Ross said of the auto market.

“If you’re looking for my advice on a car, I’d say don’t shop around if you don’t have to.”

This report by The Canadian Press was first published July 7, 2024.

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