Why can’t you buy a cheap new car anymore?

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You haven’t shopped around for a new car in the past few years, but now, you no longer have a choice. You need something now. Get ready for sticker shock: The price of new vehicles has skyrocketed, even the ones that are supposedly the most affordable.

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Before the pandemic, buying a Honda Civic in its base DX trim with a manual transmission would have cost you $16,790 or $302 per month if you financed it for five years. Today, the purchase of a Honda Civic — now an LX with CVT automatic transmission — will cost you $26,835, or $521 per month for five years.

Why is it so much more?

Well, manufacturers’ suggested retail price — the famed MSRP — set by automakers have skyrocketed. So has inflation. But even that doesn’t explain the almost doubling of price tags and monthly payments that Canadians are enduring. Adding significantly to the record high pricing is:

Extinction of small cars

The most recent small vehicle to disappear is the mini-compact Chevrolet Spark, taking with it, its mini-price of $10,500.

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Elimination of base trims in many models lineup

This leads to “semi-passive price increases,” says Ron Corbett, auto editor at the Automobile Protection Association (APA). Those base trims were “maintained to advertise the lowest possible MSRP, which is not really that important now as there are more buyers than cars,” says Corbett.

The perfect example of this is the much sought-after Subaru Impreza. Subaru’s compact that used to retail for $19,995 before, let’s call it, The Great Disruption, has since lost its sedan configuration, and then its manual gearbox. Today, the Canadian buyer who wants the least expensive all-wheel drive (AWD) model on the market must now stretch all the way to $23,295 for Subaru’s entry-level Impreza 5-door with CVT transmission.

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Semiconductor chip shortage

Of course, thanks to a shortage of semiconductor chips, the current scarcity of vehicles has (temporarily?) wiped out your bargaining power as consumers. As Jesse Caron, automotive expert at CAA-Quebec, points out: “It is very rare that the automotive market is, as it is currently, to the advantage of merchants.”

Additional options and accessories

Dealers have an easy time equipping new vehicles with all sorts of options and accessories. “Those ‘extras’ drive up the bill even more than the price increases determined by the manufacturers,” says George Iny, president of the APA.

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Interest rates

Let’s not forget those interest rates for automobile financing or leasing which, in the past year, have more than doubled. Thus, for the Honda Civic mentioned in our intro, the purchase interest rate (five-year term) went from 2.99 per cent to 6.21 per cent.

New car prices

Despite the explosion of vehicle prices, and despite high fuel prices that should push us into small efficient cars, our appetite for larger and/or more luxurious vehicles is not slowing. While the average price of a new automobile transaction in Canada was around $35,000 in 2019, it jumped 42 per cent to settle, at the end of last February, at $49,500, reveals J.D. Power Canada.

Of course, this average is based on all of the new-vehicle transactions across the country, including luxury models and expensive electric vehicles. But what about affordable vehicles? You know, the ones that boasted payments of less than $300 per month not so long ago? Why is the Honda Civic costing over $500 per month?

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If you decide to finance your vehicle, that extra $200 monthly you’ll have to pay breaks down into the following:

Basically, it’s our fault we pay thousands of dollars more for “affordable” new cars. (More on that a bit later.)

For now, let us reveal our in-house analysis of some 20 models (amongst the most popular new vehicles sold in Canada last year) that show price tag increases by only 13 per cent since 2020. (A 13 per cent increase for a vehicle with an MSRP between $20,000 and $25,000 represents a noticeable gap of roughly $3,000.)

(See below for details regarding how we conducted our research and did our arithmetic.)

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Of course, 13 per cent is an average. Vehicle for vehicle, the biggest price gaps between 2020 and 2022 are found at Honda (24 per cent) and Toyota (21 per cent), and Mazda (15 per cent). Conversely, Nissan posts among the lowest increases (five per cent) — this is directly linked to the preservation of manual transmissions for entry-level Nissan’s vehicles. Hyundai and Subaru settle slightly below average, with price increases of 12 per cent and 10 per cent respectively.

But that’s when we compare entry-level prices, model for model. If, instead, we compare the pricing of the cheapest cars offered three years ago (but since discontinued) with the pricing of the least expensive models you can purchase today within a given brand, the increase is, quite literally, double.

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In 2020, a Nissan Micra and a Chevrolet Spark sold for less than $11,000. Today, the cheapest way to “join the family” is the Nissan Versa that starts at $18,298 or the Chevrolet Trax, starting at $21,699.

We like them big(ger)

These past years, manufacturers have almost all abandoned the North American affordable small car segment to focus instead on trucks. The reasoning is simple. With vehicles and components in short supply, it makes sense to focus on those vehicles with most per-unit profit.

Lament that all you will, but can we really blame the industry for the dearly-departed Honda Fit, Hyundai Accent, Nissan Micra or Toyota Yaris? No, we can’t. It’s our fault, plain and simple, because we have systematically shunned subcompacts cars, preferring larger — and more expensive vehicles.

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In 2022, only about one new-vehicle buyer in five choose a car in Canada. In comparison, one new-vehicle buyer in four bought a pickup truck. And the rest bought an SUV. Even in Quebec, where small cars have reigned supreme for such a long time, more than half the buyers (54 per cent) are now leaving the dealership behind the wheel of an SUV — one in four buyers is leaving behind the wheel of a pickup.

The Honda HR-V and CR-V, Toyota Corolla Cross and RAV4, Hyundai Kona and Tucson, Nissan Qashqai and Rogue — all those SUVs are being assembled on a car platform. All those SUVs are sold to us for an additional $9,700, on average, versus the sedan counterpart we’re ignoring.

Not only are the SUVs more expensive to buy than the cars from which they are derived, but they are also more expensive to run. This additional premium, the Protégez-Vous team (the Quebec equivalent of Consumer Reports) estimated it at an extra three cents for each kilometre travelled — some $3,000 after five years.

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Cheapest SUVs in Canada

Nevertheless, if you insist that it’s an SUV you’re looking for, here are the most affordable new models you can currently buy.

2023 Hyundai Venue, $20,649 (Essential trim)

The Hyundai Venue is well equipped, even in its base CVT trim, the Essential, that starts at $20,649. Heated front seats and mirrors, cruise control, wireless Android Auto/Apple CarPlay, not to mention a complete suite of driving aids are included in the cost. Thanks to its high silhouette, the Venue boasts a cargo space behind the rear seats almost as generous as the (slightly) larger Hyundai Kona.

That said, know that the Hyundai Venue is built on the platform of the late Hyundai Accent. Not only does it limit the engine to a small four-cylinder (1.6 litre) of 121 horsepower (and 113 pound-feet), but it also deprives the small crossover of any all-wheel drive (AWD). At least, there’s a “snow” mode.

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2023 Nissan Kicks, $20, 998$ (S trim)

The Nissan Kicks relies on a small four-cylinder engine (1.6 litre) that boasts 122 hp and 115 lb-ft of torque. It has a complete suite of driving aids, but no AWD.

Starting at $20,998, the base trim (S) of this small crossover built in Mexico doesn’t get heated front seats — something the base Hyundai Venue gets. On the other hand, the Nissan Kicks’ dimensions are more generous than the Venue’s and has an impressive spacious interior.

2023 Subaru Impreza, $23,295 (Convenience trim)

Of course, the Subaru Impreza 5-door is a car, not an SUV. But it is (still) the most “affordable” AWD model in our market, with a price tag starting at $23,295 for the base Convenience trim with a CVT transmission.

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Cheapest cars in Canada

If you are the rare consumer not falling into the (advertising?) SUV’s trap, and you are looking for a the most affordable car… uh, good luck. The subcompact car market is almost extinct, at least in North America.

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So, what’s left? Not much. For 2023, the choice of new cars starting under $20,000 has shrunk down to just these three models:

2023 Mitsubishi Mirage, $14,298 (ES, manual)

Now that the Chevrolet Spark is gone, the Japanese subcompact is officially the cheapest new car on our market. Note that its starting price, now at $14,298, is 15 per cent more than what it was in 2020.

The Mitsubishi Mirage is also the least powerful new car you can buy. Its three-cylinder engine (1.2 litre) produces only 78 hp and 74 lb-ft of torque via a five-speed manual gearbox. That said, the standard equipment list includes air conditioning and power-assisted front windows.

2023 Nissan Versa, $18,298 (S trim)

Starting at $18,298 (S trim), the Japanese sedan relies on a manual gearbox (five-speed). This transmission deals with a 122-hp (114 lb-ft) four-cylinder engine (1.6-litre), with decent power for daily driving. As standard equipment, the Nissan Versa offers cruise control and a complete suite of driving aids.

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2023 Kia Rio, $17,445 (LX trim)

Starting at $17,445, the Korean five-door hatchback comes with heated front seats and wireless Android Auto/Apple CarPlay. Note that these items are optional for the base Nissan Versa. Here again, it’s a manual gearbox (six-speed) that motivates the 120 hp (113 lb-ft) of the four-cylinder engine (1.6 litre).

The exception to the rule

When was the last time you heard of cash discounts and 0% interest when buying a new car? Likely before wearing a mask for grocery shopping was a thing. But because there’s always an exception to the rule, let us tell you about the 2022 Chevrolet Malibu.

You read that right: Accordingly to the Chevrolet Canada website, there are still some 2022 Chevrolet Malibu in inventory, offered with either a $2,000 cash rebate or a 0% interest rate (financing up to 48 months). Most importantly, the American midsize sedan, already one of the least expensive in its class, has fought the inflation. Its 2022 starting price ($25,598) has only increased by $350 since 2020.

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If you’re interested in financing, you’re looking at:

That said, don’t delay. The 2023 Chevrolet Malibu will start at $26,953. That’s a (small) seven per cent increase from three years ago but most importantly, there is no 0% rate, let alone cash discounts for it.

Bye Bye, stick shift… except for Nissan

If the Nissan Versa and the Kia Rio are among the rare models to still display a starting price below $20,000, it is because they are home to (another) endangered species: the manual gearbox — traditionally part and parcel of the least expensive trims in any given model lineup.

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One of the last cars to withstand the tsunami of automatic transmissions was the Toyota Corolla. But for its 2023 model year, the Japanese sedan has officially lost its stick shift and now only comes with the CVT. Consequentially, its entry price (L trim) jumps $3,240 in just one year.

Wondering which affordable cars still resist the unrelenting automatization? Beyond the three subcompacts listed above, there’s another (rare) one that is upholding the manual, and that’s the Nissan Sentra. For 2023, not only does the Japanese sedan keep its base trim (S) with a manual transmission (six-speed), but its starting price of $20,548 has remained virtually unchanged for the last three years.

Of course, a car equipped with a manual transmission generally consumes more gasoline than a car equipped with a CVT (continuously variable transmission). But by how much? If you’d like to know how much extra fuel you’ll burn, you can check with the fuel consumption ratings on the Natural Resources Canada website. Make sure you adjust the search tool according to your annual mileage and your proportion of city-highway driving.

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Interest rates cost an additional $50 (minimum) every month

We probably don’t need to remind you that interest rates have gone up. But, how exactly does it affect automotive financing costs?

Essentially, for each extra $200 that you will pay monthly for your new “affordable” car, a quarter ($50) will be attributable to interest rate increases. To demonstrate the situation, let’s take the example of our introductory Honda Civic:

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Now, in 2023: Not only has the price of the entry-level Honda Civic sedan nearly doubled (the base model is now the LX with CVT, at $26,835), but so have interest rates.

If you’re still following along, you may have already figured out our next tip

Interest rates vs monthly payments

The interest rate is just about the only useful data in a financing decision. Everything else is just a marketing department window dressing. In fact, a “small payment” could be the most devastating illusion — the one where the manufacturers want you to think a new car is affordable. This was the case in the past decade, and it is still the case today.

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More than ever, as a savvy consumer, you want to look beyond payments — ​​whether monthly, bi-weekly or weekly, stretching up to 84 or even 96 months — and shop for the best rate.

Luckily, it’s very easy to do so. With their “build and price” tools, car manufacturers’ websites detail what it will really cost you, plus fees and taxes. Here’s an example to illustrate the merits of such research:

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Bottom line: At 3.99 per cent over five years, buying a 2022 Hyundai Elantra would cost just $333 a month — and, most importantly, would cut borrowing costs by another half, bringing it down to $1,895.

Leasing? Watch out for those rates that triple

As you go through your Internet research, you will notice that leasing, which has always shown higher interest rates than for buying, continues to display an additional percentage point or two.

For some brands, the gap is even larger. Remember that aforementioned Chevrolet Malibu? The lease of the American sedan, as for some other Chevrolet products, is hit with one of the highest leasing interest rates of the moment — 9.9 per cent. It’s three times as much as the purchase rate.

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Containing the “financial” damage

A “cheap car” doesn’t exist anymore. According to George Iny, president of the APA, “the last ‘normal’ year to buy a new car was in the first quarter of 2020.”

If you can, avoid buying this year. But if you really need to do so: “Pay what you can afford – and most importantly, avoid the negative equity,” says Iny.

To contain the damage, “Consider sedans rather than SUVs, so as to avoid the added value associated with crossovers,” says Jesse Caron, automotive expert at CAA-Quebec. “And as much as possible, aim for cars that are in inventory.”

The fine print

As there are more or less 300 car models in the Canadian market, we had to limit ourselves. Therefore, we focused on the most popular cars and SUV in Canada. We added the models that, in the past, managed to appear in our annual stories of the most affordable vehicles of our market — even if they do not appear on the lists of models that Canadians buy the most.

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We removed pickup trucks from this analysis, although last year one in four new vehicles purchased in Canada was a pickup. But even the most compact of these vehicles starts at $31,100 for the Ford Maverick, or $40,299 for the Hyundai Santa Cruz, and well, that’s not quite what we’d call affordable.

Then, we collected the 2023 model-year prices for these “flagship” models. We also went back in time (and into our archives) to compare the price tags of 2020 model-years — i.e. before the Great Disruption.

To compare apples with apples, we chose not to include sales taxes, neither freight and delivery costs — which, depending on the models, vary today from $1,750 to $1,995. Additionally, we did not to include the “administration fees” now being commonly charged by dealers.

Speaking of which, here’s our last tip for you: The power resting in the dealers’ hands is now so pervasive that they don’t even bother to hide those extra fees. Until the supply chain woes alleviate and inflation pressures abate, Canadian consumers looking for a new vehicle are best to adhere to the age-old shopping maxim: Buyers, beware.