Dealer, automaker issues adding to some Canadian car prices: report

• A new survey found 37% of buyers were charged more than MSRP on new vehicles
• 41% experienced “tied selling” where they had to add extra warranty, insurance, or protection to the vehicles
• That said, the majority of buyers believed they paid a fair price and the dealer was honest

If you bought a new vehicle in Canada in the last three years, you may have overpaid. That’s the conclusion of a new report from Car Help Canada, which said the sharp rise in vehicle prices over the years is partially due to “automobile dealerships engaging in deceptive sales practices to charge higher prices to consumers.” Other factors for the price jump include auto manufacturers raising their prices, and higher interest rates for financing and leasing.

But the study also pointed out that all of the provincial regulators interviewed “acknowledged that dealership sales practices such as tied selling, misleading advertising, and pricing disinformation are significant problems in the marketplace for new vehicles.”

The report is based on a Canada-wide survey of consumers who purchased a new vehicle between October 2021 and October 2023, which was during the COVID-19 pandemic.

“Tied selling” is when consumers are required to pay for dealer products such as insurance, protection products, or extended warranty plans; and 41% of those surveyed said they had experienced it. Of those tied-in products, more than 60% added between $1,000 and more than $3,000 to the vehicle’s final price.

Along with that, 37% said they were forced to pay more than the original MSRP (Manufacturer’s Suggested Retail Price) – known in the industry as “market adjustment fees” – and 85% of those markups ranged from $1,000 to more than $10,000.

The report also noted other dealership practices contributing to the price rise included forced financing, where the dealership requires the customer to finance at a rate that includes a hidden commission for the dealer that can range from $50 to $2,000 per vehicle; misleading advertising, also known as “bait-and-switch,” where a dealer advertises a low-priced vehicle but gets the customer into a higher-priced one, and the advertised vehicle might not even exist; and contract changes, where a customer ordered a vehicle at a specified price but which rose by the time the vehicle arrived.

While “all-in” pricing is mandatory in Quebec, where the advertised price includes delivery and fees, the report found that some buyers were still hit with tied selling, “junk” fees, or a higher price if they didn’t use financing. The report noted that this didn’t increase during the pandemic—but the rate of it happening didn’t decrease either.

The report did note the majority of consumers surveyed “believed they paid the right price and felt the dealer was professional, honest, and transparent.” It also noted 55% of consumers had to order a new car and wait for it, and more than 40% had to wait longer than originally promised. Most had to wait between one and six months—although it was during the pandemic, when chip shortages and supply-chain issues created problems with deliveries.

In the fourth quarter of 2019, the average price of a new vehicle was $40,386, and an average used vehicle was $18,900; by the fourth quarter of 2023, new-car prices had risen to an average of $67,259, while used vehicles were up to an average of $36,863

The report found that in the fourth quarter of 2019, the last full year before the start of the pandemic, the average price of a new vehicle was $40,386, and an average used vehicle was $18,900. In the fourth quarter of 2021, a new vehicle had an average price of $50,758, a rise of 13%. Average used-vehicle prices had risen 35% to $33,240, a direct result of the shortage of new cars.

By the fourth quarter of 2023, new-car prices had risen to an average of $67,259, while used vehicles were up to an average of $36,863. The report concludes the rise was “the result of actions by both automobile manufacturers and dealerships.”

Automakers have increased the MSRP of their vehicles “by a substantial amount every year” since 2020, said the report. Pandemic-related vehicle shortages also resulted in the loss of manufacturer incentives, such as price rebates or reduced interest rates. High interest rates from the Bank of Canada, as a measure against inflation, also contributed to this, the report said.

The report cited information from J.D. Power, which said almost 60% of auto loans are now 84 months or longer. Although these reduce the monthly payment for consumers, average monthly payments ranged from $620 to $660 in 2020, but had risen to $860 to $900 by 2023. Some 74% of Canadians finance or lease their new vehicles, and in 2023, 29% of borrowers had monthly payments of $1,000 or more. In 2019, only 10% had payments that high.

In light of the survey, Car Help Canada is recommending that dealer practices such as tied selling, market adjustment fees, and junk fees should be prohibited; all-in pricing advertising legislation should be expanded to all provinces; and that substantial penalties and disciplinary actions by provincial authorities should be increased for non-compliant dealerships, and especially for repeat offenders.

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