In the first quarter, the number of people who were underwater, or had negative equity in a vehicle — meaning the value of their car was less than the outstanding balance owed on their car loan — more than tripled, according to data from Clutch.ca, a Toronto-based online car merchant.
Clutch chief executive Dan Park described it as a hangover from both the pandemic and the supply chain snafus of recent years, which shut down parts of the global auto production supply chain for months at a time, causing new and used vehicle prices to shoot up.
Overall, Park said the amount of negative equity increased by 52 per cent in the past year to $7,710 on average, up from $5,050 from the first quarter last year.
The situation demonstrates one way that the broad-based price inflation that started infecting the economy in 2020 is casting a long shadow over the economy and consumers.
In the first quarter of 2021, a new car cost an average of $45,400, while a used car cost $27,100, according to Autotrader.ca, the online vehicle marketplace. Prices then rose and approximately peaked in the third quarter of 2023 at $67,800 and $39,100, respectively.
Nevertheless, that amounts to a 43 per cent rise in new vehicle prices on average since 2021 and a 27 per cent rise in used vehicle prices, far in excess of the Bank of Canada’s inflation target range of one per cent to three per cent per year.
But some analysts believe vehicle prices are set to rise yet again given the barrage of U.S. tariffs on both vehicles, steel and aluminum, as well as the threat of imposing tariffs on auto parts next month. Already, two out of five automakers in Canada have temporarily paused some manufacturing here amidst uncertainty about market conditions.
Nevertheless, Park said he’s surprised by how many sellers do not realize they are underwater on their cars.
“The extent to which the proportion of folks with negative equity has gone up is quite staggering,” he said. It’s “kind of a crazy concept if you think about it — the idea of ‘being able to afford to sell your car.’”
Post Credit: By , Published on
