Brian Murphy
Our analysis shows entry level vehicle prices keep rising
More than a few of you very astute readers have noticed that there have been a lot fewer inexpensive entry level new vehicles in OEMs’ lineups these days.
It is not your imagination at all, there have been a lot of changes, across every brand. Many vehicles have been dropped from product lineups over the last decade, which has created affordability challenges for consumers and auto retailers.
Back in June I wrote an article called “Are we facing car-flation?” A question that I answered with a resounding yes. I hopefully proved my point by building a Vehicle Inflation Index (VII) using prices of high-volume Canadian vehicles from 2014 to 2024.
Practically speaking, retailers can counteract this by doubling down on their used car operations, given inflationary pressures used vehicles are more important than ever before.
From that review I found that car prices rose by 40 per cent, compared to 29 per cent overall inflation during the same period of time. In my books, that is a lot of consumer coin!
A straightforward way to look at type of general car-flation is that based on my research a car priced at $30,000 in 2014 now costs (on average) about $42,120 — not the $38,554 it would if it strictly followed general inflation as calculated by Statistics Canada.
In the article I also mentioned the phenomenon of the “disappearance” of more affordable, entry-level models from the Canadian market. I view this as an even more serious problem for consumers, retailers and OEMs.
By way of example, back in 2015 there was a low-cost Nissan Micra priced at $9,998, which was the lowest priced car in Canada. But today, the lowest priced Nissan is the Versa, now starting at $20,798. That is more than double the original price, which highlights both general inflation and the market shift toward more profitable models and electrification. I’m not picking on Nissan at all; it is just the current law of the automotive jungle.
Not long after I finished the earlier article it occurred to me that there was a way to quantify what the impact on these market model disappearances is on the consumer.
Inflation is usually tracked by summing the prices of a basket of goods on a specific date and then comparing it to the prices of the exact same basket of goods on a different date. This is essentially how the consumer price index is calculated. Entry Level Price Index (ELPI) anyone?
To understand this shift in the market I tallied up all the prices of the least expensive vehicle in an OEM’s line up from 10 years ago (2015 model year) and then compared it to the same group of OEM’s lowest price offering today. I excluded a few brands but did include premium products up to and including Porsche. In the end I surveyed the lineups of 30 brands for my review.
By the numbers:
- For the 2015 model year the average MSRP was $25,102
- For the 2025 model year the average MSRP is $37,270
- The difference over the past decade is $12,168 to the consumer.
- This is an increase of spending for the consumer of 48 per cent!
- General inflation was 30 per cent over the same 10 year period, 18 per cent lower
- Two of the brands have more than a $25,000 increase in their entry models
- The lowest increase was a more reasonable $2,900
Best case, this means that compared to ten years ago consumers need to come up with (on average) another $12,168 if they are looking to purchase the lowest price model in an OEM’s line up.
Typically, in practical terms that will likely mean longer finance terms, which of course keeps the consumer upside down in negative equity longer should they choose to finance. I think we can all agree that asking a consumer for another $12,168, on average, is no easy conversation!
Worst case, this upward shift in market pricing pushes many consumers right out of the showroom, or in some cases they don’t even get off the couch after visiting the OEM’s website. The steeper price of entry can often lead consumers to defer new car purchase and decide to keep maintaining the ride they have on the road.
This shrinks the industry volume and also reduces the retailer’s sales revenue and after sales revenue. Deleting what I like to call the” welcome mat products” in so many OEM’s lineup is just not good for anyone in the long run.
Practically speaking, retailers can counteract this by doubling down on their used car operations. Given inflationary pressures used vehicles are more important than ever before. A robust well supported OEM CPO program that can walk a customer from the new offerings to the used is retail mission critical.
Competitively speaking, this also sets up the Canadian market to welcome new low-cost competitors such as brands from China, or brands from Europe that don’t yet exist here.
Recently U.S. and EU trade negotiations fundamentally agreed they would recognize each other’s vehicle safety and emission standards. This means a regulatory wall that has kept many cars and brands away from the Canadian and U.S. markets could crumble shortly. It could open the door to lower cost brands quite quickly.
I would like to write a follow up article ten years from now about how there has been car deflation since 2025, but I don’t think my odds are that good.
