High Car Prices: Who’s Really at Fault?
Dreaming of new wheels, consumers are often shocked by high vehicle prices, both new and old. Wondering who to blame, they look for culprits along the entire supply chain. Greedy automakers? Grabby dealers? Grasping bankers?
The right answer might lie far closer to home. It seems that many Canadian car buyers are happy to fork out their hard-earned dollars on unquestioned costs, rather than spending a few hours learning how to make smarter choices.
Just published by Deloitte, the latest (2021) Global Automotive Consumer Study offers some disturbing insights into global car purchasing habits, compared to Canadians:
- 35% of Canadian consumers never research their auto financing;
- 55% of Canadian car buyers spend less than an hour looking for lower financing costs.
With automobiles being the second-largest purchase for almost all consumers, this casual attitude towards auto financing is shocking, rather than merely surprising. In fact, the total costs of multiple car purchases over a lifetime may well rival the purchase value of a home, particularly as new car and truck prices are drawing close to $50,000.
Purchase, Lease or Subscribe?
The traditional choice between leasing or buying a car in instalments is rapidly opening up to include what is being described as a ‘subscription’ model. Raised on the concept of signing up rather than buying (think Netflix and Spotify), younger consumers are opting out of car ownership in rising numbers.
In a recent survey, 55% of Generation Z members (under 25 y.o.) agreed that transportation is necessary, but owning a vehicle is not. Almost half (45%) of the Millennials (under 40 y.o.) agreed with them, followed by Generation X (under 55 y.o.) at 34%, with Boomers (moving into their seventies) trailing the pack at 28%.
- 30% of Canadians between 18 and 34 years old are interested in lease-like car subscriptions;
- 20% of all Canadians would opt for deals that allow same-brand vehicle switches.
However, fewer than one out of ten consumers would be willing to pay a realistic 20% (or more) for this swap-at-will benefit:
- 50% wouldn’t accept more than a regular car lease price for the right to switch cars whenever they want;
- 14% think that car subscription fees should cost less than regular instalments.
In real-life terms, this means that Canadians aren’t fans of reading the fine print and doing their financial homework. But who is? As it turns out, millions of people all over the world carefully check every detail before signing on the dotted line.
Elsewhere in the World …
Contrasting with these pie-in-the-sky financial fantasies, consumers elsewhere in the world have their feet firmly planted on the ground.
According to the Deloitte survey, twice as many (56%) Indians spend more than three hours exploring financial alternatives, with a scant 6% admitting they skipped this step completely. In China, only 8% of consumers don’t check out their loan options.
Furthermore, many buyers in these two countries assign high priority to financing flexibility, particularly early termination conditions. Meanwhile, too many Canadians remain focused tightly on whether they can afford the instalments, with little attention to interest rates and other hidden costs.
Knowledge Saves Money
For Canadians thinking about trading in their wheels for newer models, the first step should be researching the real price of vehicle ownership, particularly loan conditions like duration, interest, and depreciation rates. A few hours checking out the long-term costs of that ‘special offer‘ financing can save hundreds or even thousands of dollars over the next few years.
After all, the smartest car buyers always remember the Nº 1 budgeting rule: It’s not what you earn; it’s how you spend it!
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