Canada’s auto industry braces for a volatile 2025
Sales of new cars, both gas-powered and electric, in Canada rose in 2024, while used vehicle sales sagged and are expected to continue to drop.
But 2025 could be one of the most volatile years in the Canadian auto industry, according to several people interviewed by Canadian auto dealer.
Partly because of the uncertainty of the Liberal government’s fortunes, steep tariff threats from U.S. President Donald Trump, the sagging dollar compared to its U.S. counterpart, and some controversial provincial decisions concerning pulling support for EV rebates.
Rises in sales of new cars continued in 2024 — about 15 per cent for ICE vehicles and more than five per cent for EVs — following an upward trend from 2023.
A major factor for the increases in 2024 was the Bank of Canada dropping interest rates by a combined 1.75 per cent, along with more inventory supplied to dealers by manufacturers.
Daniel Ross, Canadian Black Book’s Senior Manager, Industry Insights and Residual Value Strategy, said the interest rate drops in 2024 prompted the purchase of new vehicles and he predicted that consumer appetite will continue in 2025.
“Now they are seeing that availability and many incentives come to market to help get them into showrooms and into a new vehicle, and manufacturers are supporting and subventing those rates to bring them down on lease payments and finance payments,” said Ross.
“We are a payment-driven consumer body for the auto market in Canada. Now that’s coming in line of where people would like it to be. Maybe not just there yet, but it’s moving in that right direction pretty consistently now. People are seeing those incentives and making the move to purchase new.
“If you are a buyer looking at a brand that has a lot of inventory and has incentives out there, you’re not going to be paying over sticker for that like you have been 24-36 months ago. That scenario is gone for the majority of the market.”
Conversely, Ross said it’s “not a peachy environment” for dealers.
“I think they are getting back to normalized levels of profit, which they probably aren’t in favour of,” said Ross. “Buyers are still waiting them out and getting the deals they want to purchase the vehicle.”
The continued appetite consumers have for electrification has the EV community excited, though some critics are saying it isn’t growing fast enough to reach the federal government’s target of zero emission vehicles representing 20 per cent of all new car sales by 2026.
“The problem that is exacerbating this negative narrative around EVs is that we never really had a regular year of production,” said Ross. “That inventory is starting to build up but it’s still a small portion of our markets.”
In 2024, the Quebec government said it wants to eliminate all its provincial rebates by 2027 and is phasing them out every year until then.
The $7,000 rebate in 2024 drops to $4,000 in 2025 and $2,000 in 2026. Daniel Breton, President/CEO of Electric Mobility Canada, said if you look at the EV adoption curve in Quebec the last two years sales have gone up progressively and steadily, but the rebate announcement did not spike sales as some have suggested.
“People thought it went from good sales to amazing sales all of a sudden because of the government announcement and it’s the same adoption growth that we have seen for two years,” said Breton.
He said increased inventory and the interest rate drops, in particular, were almost as impactful as the rebate announcement.
The Quebec government made a surprise announcement in mid-December that it was suspending the rebate program, which also includes EV chargers and installation, from February to the end of March. Breton said it’s all part of a plan to make the finance numbers look better ahead of the next budget.
“This is really disrupting the Quebec market,” said Breton. “For two months, sales are basically almost going to stop.”
In B.C., dealers are feeling the effects of the decision by the provincial government to change the rebate program, funded by B.C. Hydro, on the purchase of new EV sales from $55,000 to $50,000.
Blair Qualey, President/CEO of the New Car Dealers Association of B.C., said EV sales dropped by about 66 per cent from August to December in 2024 relative to the same time period the previous year. Qualey said dealers were told the decision was tied to funding challenges.
Ross added there is already a problem with EVs because some brands don’t have enough supply with hybrids and plug-in hybrids to accommodate consumer demand. A common lament among dealers is they aren’t supplied with enough hybrids, which sell quickly, and are stuck with excess EVs that don’t have an ICE option.
“There’s nothing to support affordable EVs, and whether or not there’s incentives on the vehicle they are very expensive,” said Ross.
On a national scale, there is a concern that the federal rebate, which has a maximum of $5,000 on some vehicles, will be adversely affected if the Liberal government is toppled by the Conservatives in an election expected sometime in 2025.
Ross said a Conservative government may lead to an elimination of rebates or a “slow degradation” of them.
Jérémie Bernardin, Director of Electric Vehicle Training and Innovation for Integrated Automotive Experience, said if there is a change in government there would be a negative impact on EVs in the short term, but added electrification is not going away.
“If there is a change in leadership, the industry is not going to stop making these,” said Bernardin.
For all the positive news about the upward shift in new car sales, there is concern in the industry that the limited used car inventory could plummet significantly. Ross said it could stretch into 2027 before it improves.
He noted consumers who opted for finance rates stretching for 84-96 months for new cars or owners buying their cars after their lease expires because of negative equity and the higher cost of purchasing a new vehicle have contributed to the used car shortage.
Bob Manor, who has 30 years experience at the forefront of Canada-U.S. auto wholesale, said the shortage started with the disruption caused by COVID and the semiconductor shortages, leading to reduced new vehicle production, which bottlenecked the pipeline of vehicles entering the used market.
He also said with fewer new vehicles available during the pandemic, lease programs were scaled back, resulting in “significantly” fewer lease returns.
He added that as COVID restrictions lifted and economies reopened, demand for vehicles surged. He said consumers who delayed purchases, flooded the market, outpacing supply and further depleting inventory.
David McQuilkin, Dealer Principal/GM of Gallinger Ford Lincoln in Milton, said another factor is the weakened Canadian dollar that has resulted in U.S. buyers raiding auctions or dealing directly with dealers for cars.
“The car industry in the States is so large and they are constantly looking for any arbitrage —any savings — and Canadian vehicles, trucks in particular, are cheaper to buy (for Americans),” said McQuilkin. “We’ve got an export division in our company and we’re shipping two to three tractor-trailer loads of used trucks every week. Again, the consumers benefit from that. The Americans are paying more than we get at the auctions up here (from Canadian buyers). But again, who’s the beneficiary? The consumer. Now we adjust our trade-in prices because we know what we can get at the auction. The Canadian dollar helps the trade-in values for consumers.”
Manor said U.S. buyers and Canadian exporters are in a “frenzy” to secure inventory ahead of an expected 25 per cent tariff imposed on Canadian imports that has been threatened by U.S. President Donald Trump.
“If tariffs are imposed, the export pipeline to the U.S., valued at approximately $15 billion annually with about 370,000 units exported, would close overnight,” said Manor. “This would be disastrous not only for exporters but also for the domestic market where used vehicles are currently propped up by U.S. demand. Canadian vehicle prices would plummet without U.S. buyers, creating a market correction unlike anything seen in recent history.”
