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Did you know: New car prices depend partly on amount of used ones available?

There are numerous factors that go into the price of a new car, including how much it costs to build it, how many options it has, and if it’s imported, the rate of currency exchange.

But there’s also an important consideration that you may not realize: the number of used cars that will be on the market when that new model goes on sale.

“New-vehicle prices have come down in recent years, and are actually below where they were in 2007,” says Carlos Gomes, senior economist and auto industry specialist for Scotiabank. “You’ll start to see a change next year, and used cars are the key.”

Used cars affect the price of new cars—and their price, in turn, is generally determined by how many there are available. The prime age is around four years old, when they’re still new enough to appeal to most buyers in the secondary market, and when many of them are coming off leases. When there are fewer of these used vehicles available and demand for them is high, sellers can ask more money for them.

“Prior to the economic downturn of 2008 and 2009, we used to have around 600,000 vehicles that were leased annually,” Gomes says. “That virtually collapsed and has been slow to recover, and a result, we’re having a very significant shortage of used vehicles.”

When used-car prices are high, and therefore closer to the cost of a brand-new car, many buyers are likely to spend a little extra to get the new one.

Manufacturers try to keep the difference as small as possible, either by setting lower prices or by offering incentives, so that buyers will choose the new model.

The automakers continually monitor annual car sales and leases, which gives them some idea of how many vehicles will enter the resale market in the future, and how that number will affect the price of used vehicles overall.

“Vehicle affordability is at one of the best levels ever, so it’s a great time to buy a vehicle,” Gomes says. “However, keep in mind that improved emissions technologies will start to be phased into vehicle prices as well, so expect that the trend of low prices on new cars is likely not here to stay.”

The raw numbers

  • 2013. Canadians will buy approximately 1.73 million new vehicles in 2013.

  • Imports. Canada normally imports between 150,000 and 200,000 used vehicles from the U.S. each year, but that number has dropped due to very low new-vehicle sales following the 2008 economic crash.

  • Downturn consequences. Because of poor sales following the economic downturn, only some 6.5 per cent of all cars currently on the road in Canada are four years old.

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