After years of supply shortages, inflation, rising interest rates and rapid increases in vehicle prices, many Canadian consumers are entering dealerships with tighter budgets and greater caution.
Affordability now shapes nearly every buying decision.
A KPMG Canada survey released in late 2025 found 76 per cent of Canadians were worried ongoing trade tensions and tariffs would make new vehicles unaffordable, while 62 per cent said they would not spend more than $50,000 on a new vehicle. Yet average new-vehicle transaction prices remain well above many consumers’ comfort levels.
For dealers, the affordability challenge is not theoretical. It shows up every day in payment conversations, trade-in decisions, financing terms, lease-end choices and service-lane behaviour.
At Canadian Black Book, the data reflects that disconnect.
The pricing squeeze
Affordability pressures remain entrenched in both the new and used vehicle markets, even as inventories stabilize and wholesale conditions begin to soften.
Daniel Ross, director of strategic market insights at Canadian Black Book, said the market has yet to deliver meaningful relief for consumers despite some moderation in pricing volatility.
“We’ve obviously been under extreme volatility,” said Ross in an interview with Canadian auto dealer. “We wanted things to sort of settle during 2025, but we didn’t have that because of the tariff impositions from the United States and our reciprocal tariffs back to them. So affordability as a whole hasn’t really improved.”
Ross said Canadian consumers saw roughly a 20 per cent increase in manufacturer suggested retail prices between the 2019 and 2023 model years, followed by another 10 per cent increase afterward.
That pressure is visible in several different pricing measures. Ross said the average vehicle sold in Canada today sits in the $60,000 to $65,000 range, while the average equipped retail price across the market is now “upwards of $80,000.”
According to DesRosiers Automotive Consultants, average transaction prices for new light vehicles in Canada fell 0.6 per cent in 2025 to $53,400 — the first decline after years of sharp increases. The modest drop suggests some easing, but not enough to fundamentally change the affordability equation for many households.
AutoTrader’s 2025 Top Vehicles data also showed Canadians increasingly gravitating toward practical and mainstream vehicles, while luxury search activity across the marketplace declined 11 per cent year-over-year.
Ross said affordability conditions remain uneven across segments.
Electric vehicles, particularly those qualifying for federal rebates, are becoming more accessible as manufacturers target lower price points and expand trim offerings.
“We’re growing the trim count in EVs while other areas of the market are shrinking,” said Ross.
Hybrid vehicles continue to command strong demand as consumers view them as a middle ground between gasoline-powered vehicles and fully electric models.
Ross also pointed to longer-term pressure on residual values as high transaction prices and growing incentive spending weaken retained values across the market.
“We’re actually seeing the outlook now. Because of the high price that we’ve raised all these vehicles to, and the high incentive spend that’s returning to the market, our retained value for 48-month vehicles in market is lower than pre-pandemic levels,” he said.
Conditions in the used-vehicle market are also evolving. Ross said the traditional flow of lease returns into the secondary market remains constrained as some consumers continue buying out their vehicles at lease-end rather than returning them.
That has implications for dealers trying to manage certified pre-owned supply, used-vehicle acquisition costs and customer retention at a time when many consumers are trying to avoid higher monthly payments.
At the same time, Canadian Black Book forecasts suggest the residual value gap between gasoline vehicles and EVs will narrow significantly by the end of the decade as EV adoption and consumer confidence improve.
“We’ve already sold all these new EVs,” said Ross. “Now we have to remarket them and bring the customer back to sell them on the secondary market.”
Ross said affordability gains in EVs are being supported by incentives, growing inventory and the prospect of lower-cost Chinese electric vehicles entering the Canadian market.
“We anticipate more of a $45,000 or less price point,” he said of future Chinese EV competition.
Dealers adapt to consumer pressure
For dealers, the affordability crisis has become a day-to-day operational challenge tied to broader household financial strain.
“Affordability, whether for vehicles or other things, it’s the core issue for all Canadians, or the majority of Canadians,” said Charles Bernard, Chief Economist for the Canadian Automobile Dealers Association.
Bernard said vehicles occupy a unique position within the affordability debate because many consumers cannot simply delay or avoid the purchase entirely.
“It’s a need, kind of like housing,” he said. “You can say no to an extra restaurant or going to the movie theatre. But you can’t really do that for an automobile if you need it.”
He said years of investment in electrification, COVID-era supply chain disruption and tariffs all contributed to sustained vehicle price growth.
At the dealership level, the challenge has shifted toward managing financially stressed consumers who still need transportation but are more sensitive to payments, trade-in values and the total cost of ownership.
Bernard said wage growth has not kept pace with rising prices, contributing to the affordability pressure facing many households.
“Every consumer feels like they have less for what everything costs,” he said.
That pressure is changing dealer strategy. Higher vehicle prices are encouraging many consumers to keep their vehicles longer, placing greater importance on the servicing side of dealership operations.
For dealers, that means fixed operations, customer retention and long-term relationship-building are becoming even more important parts of the affordability conversation.
“Now with the inventory environment being a bit more stable and dealers having a bit more product, there’s a bit more incentive on their side to make deals and put in incentive programs,” said Bernard.
He said the retail experience itself has become increasingly important in a payment-sensitive market.
“I think the relationship you’re building with the consumer is even more key,” he said.
EVs and the affordability debate
The affordability discussion also intersects with Ottawa’s EV strategy.
Bernard said affordability appeared to be a key factor behind Ottawa’s openness to lower-cost Chinese EVs. Still, he cautioned that lower prices alone will not solve Canada’s EV adoption challenges.
“We didn’t believe it was a supply problem. We thought it was a demand problem. It still is,” he said. “People are having infrastructure anxiety, people have price anxiety about some of those cars and people are also unsure about the technology in the winter.”
According to the J.D. Power 2026 Canada Electric Vehicle Consideration Study, limited driving range remains the biggest barrier to EV adoption, cited by 65 per cent of shoppers unlikely to consider an EV. Charging availability followed at 56 per cent, while 54 per cent cited concerns about performance in extreme temperatures.
Purchase price no longer ranked among the leading barriers to EV consideration, suggesting incentives, lower effective prices and greater model availability may be helping address one of the key objections consumers had to EVs.
The study also found growing openness to lower-cost Chinese EVs. Among shoppers already considering an EV, 56 per cent said they would consider a Chinese EV brand, while nearly one-third of all new-vehicle shoppers said they would be open to buying one.
For dealers, that presents both a competitive question and a customer-education challenge. More affordable EVs could expand the market, but consumers still need help understanding range, charging, battery performance, winter driving and long-term ownership costs.
The dealer challenge
Overall, Bernard said dealers are operating in a difficult environment where consumers remain financially stretched but still need transportation.
For many retailers, the affordability squeeze is forcing a broader conversation with customers. The issue is no longer simply whether a buyer likes a vehicle. It is whether the payment works, whether the trade-in helps enough, whether financing terms are manageable and whether the ownership costs make sense over time.
As affordability pressures persist, transparency, strong customer relationships and helping buyers navigate their options will remain a critical part of the retail experience.
“I think the relationship you’re building with the consumer is even more key,” Bernard said.
