Yes, cheap cars are dying out just as we need them, but we’ve got some tips for how Canadians can adapt
In Canada, truly cheap cars are officially a relic of the past. Just seven short years ago, it was possible to buy a brand-new car in Canada for less than $10,000 before fees. Now, going into 2025, the cheapest new car in Canada is priced just over $20,000. And this comes right as affordability is hitting a tipping point for Canadian households.
How did we get here? There are three major factors involved. Here, we’ll walk through what’s driving vehicle prices up in Canada; and what you can do as a car buyer to keep your own vehicle costs as low as possible.
- Why you can’t buy a cheap new car in Canada any more
- What the disappearing affordable car means for Canadians
- How to spend as little money as possible buying a new car
- More affordable alternatives to buying a new car
Where have all the cheap cars gone?
One major factor driving up vehicle prices in Canada is that our subcompact car segment is all but dead. This happened for one very simple reason: we weren’t buying them.
“In Canada, the Mirage was the lowest-selling vehicle in the Mitsubishi Motors lineup,” Dakin explains. “[This decision] allows Mitsubishi to shift its focus and resources on growing the SUV lineup.”
You’ll find that same sentiment echoed by every automaker that’s cut its cheapest cars. Manufacturers can only sell what people will buy.
Cars are more expensive to build
The second thing driving up prices is that cars are more expensive to build today than they were a decade ago. Crash safety standards are more stringent. Built-in infotainment screens were once a premium feature, but mandatory back-up cameras have made them a given. Radar-based safety systems require more sensors and on-board computing. And that’s before factoring in features Canadians have come to expect as standard, such as heated front seats and smartphone integration.
“We can’t build Chevy Cavaliers from the ‘90s because they would never pass regulation,” says Robert Karwel, Director of Customer Success in the Data and Analytics Division for J.D. Power & Associates in Canada. “They have to be safer, cleaner, and increasingly not combustion-powered. Don’t look for vehicles as a whole in our marketplace to be getting cheaper any time soon.”
Inflation is driving car prices up
The third thing affecting vehicle prices in Canada is influencing prices on just about everything else: inflation. “The COVID craziness happened, massive inflation like we haven’t seen for a generation in Canada, and everything got really expensive,” Karwel explains. And when the costs of doing business go up for automakers, those costs inevitably gets passed on to you, the customer.
“The automotive industry has seen some price increases in recent years, driven by a number of factors which rise from supply-chain disruptions, transportation costs, to the cost of raw materials, and the overall inflation,” Douâa Jazouli, Manager of Product and Technology Communications for Nissan Canada, told Driving.ca.
“Let’s not forget,” Karwel adds, “the [Canadian auto workers union], Unifor; and the [U.S. United Auto Workers union], their wages went up 25% to 30% in the last round [of collective bargaining agreement negotiations]. Where do we think that’s going to come [from]? I’m not saying there’s anything wrong with that. This is how the economy works.”
Young people are being priced out of Canada’s new-vehicle market
What’s the inevitable end result of the death of cheap cars and the subsequent rise in entry-level new vehicle prices? Canadians with lower budgets are being priced out of the new-vehicle market. Karwel says his statistics show young people are taking the biggest hit.
“Roughly 25% of the [new-car] market was under 35 years of age [prior to 2020],” Karwel says. “Post-COVID, it dropped to about 20% to 21%. That doesn’t sound like a lot, but that’s a number that doesn’t [typically] change very quickly.”
Karwel points out that young people who live in urban environments may opt out of vehicle ownership because they have access to public transit and ride-hailing. But he also sees rising vehicle prices pushing young buyers into the used-car market. And since interest rates on used cars are consistently higher than on new cars, that’s not a great place for cash-strapped young Canadians to be.
“The average [Canadian monthly] financing payment is still about $850,” says Karwel. “We were hitting close to $900 last year. It’s [roughly] $200 per month more than pre-COVID. So, we pushed those buyers away. We’re not really doing ourselves any favours with younger folk if payments are high by immediately historical norms.”
Even as new cars get more expensive, there are good reasons to choose them over used cars. New cars can usually be financed with lower interest rates, and they often have better average fuel economy ratings than older ones. They also come with manufacturer warranties that help mitigate unexpected expenses, which helps keep costs stable for the first few years of ownership.
If you’d still like to buy a new car but aren’t sure where to start as vehicle prices trend upward, here are a few points to consider.
Choose the smallest vehicle you can live with
With subcompact cars all but gone, subcompact SUVs are now the de facto entry point for most brands in Canada. And Canadians are increasingly choosing them as a relatively affordable option. This is not only true of the people who would formerly have chosen a cheap car: some of us are downsizing from larger SUVs and even trucks to save money. In fact, Karwel says subcompact SUV has overtaken midsize SUV over the past 12 months to become the third-largest sales segment in Canada.
Incentives are back, so shop around more aggressively
Don’t get your hopes up if you’re shopping within a very popular segment, though. Karwel says compact SUVs, and especially hybrids, are still selling as fast as dealers can get them, so you’re unlikely to see price drops there. But if you’re willing to buy a lower-trim vehicle or within a less popular segment — again, at the budget end, we’re thinking small cars, here — you’ve got more power as a buyer than you did a couple of years ago. It’s worth doing some cross-shopping and putting pressure on salespeople to score yourself a better deal.
Get clear on how financing and leasing work
For example, Karwel says most new car buyers in Canada today choose to finance for 84 months (or seven years). This gives you a lower monthly payment than a 60-month/five-year term, but that doesn’t mean it’s automatically the best choice for you. What if your household needs change in seven years? What if you move and can’t take the car with you?
Canadians with lower budgets are being priced out of the new-vehicle market—and young people are taking the biggest hit
Karwel says we’re seeing negative equity trending back upward in Canada after a brief reprieve during the pandemic. He says it’s not yet approaching record levels, and he’s not worried yet, but it’s something he’s monitoring. A trend he’s more concerned about is the increase in used-vehicle buyers choosing 84-month financing. Depending on the age of the used vehicle when you buy it, a seven-year term means it could reach the end of its life before you’ve finished your payments, leaving you paying for a car you can no longer use.
Depending on your answers to these questions, you may be better off getting a less expensive vehicle that you can pay off faster if your budget allows it.
Consider a lease or a Certified Pre-owned vehicle
Leasing is another option for buyers on a budget. It tends to be more affordable than financing, but it comes with its own set of challenges. For one, you don’t own the vehicle at the end of the lease, so the money you spend benefits the dealership instead of you. There are also strict limits on how you can drive the vehicle and financial penalties if you surpass those limits. And if your situation changes, breaking a lease is very complicated, time-consuming, and costly. But if it’s the only way to get a monthly payment you can afford, then leasing may be your best choice.
For some buyers, Certified Pre-Owned vehicles (CPO) can be a good alternative. CPO vehicles are newer used vehicles that are inspected by automaker-certified mechanics to ensure they’re in good shape. They typically come with some amount of warranty coverage and lower interest rates than uncertified used cars. CPO vehicles are more expensive than equivalent non-CPO used vehicles because of this, but they’re more affordable than new vehicles.
“Financial solutions such as leasing and certified pre-owned financing are useful tools to address affordability in the marketplace,” says Mark Di Donato, President and Chief Executive Officer for Hyundai Capital Canada Inc.
Di Donato points out you can also lower your vehicles payments by making a larger down payment up front and choosing to make more frequent payments, such as bi-weekly instead of monthly.
“The ability to customize an automotive lease or loan through security deposits, down payments, contract term, payment frequency and loyalty incentives, are other ways that OEMs, dealers, and lenders help to match a vehicle payment to a specific customer budget,” Di Donato says.
Put off your next vehicle purchase if you can
One of the best things you can do to keep your car payments affordable is to not have one at all. If you’re shopping for a new car because your current one is older but it’s paid off and in good shape, you’ll benefit greatly from keeping it on the road and putting some money away every month instead. This will allow you to save up for a larger down payment on a future purchase, which will ultimately save you money.
In short, when you’re buying a new car, you have more levers to pull than you might think. Even as new vehicle prices go up, there are a variety of tools at your disposal to keep your car costs manageable. With this information at hand, you’ll find it easier to work through your options and make a decision that’s right for you.
Sign up for our newsletter Blind-Spot Monitor and follow our social channels on X, Tiktok and LinkedIn to stay up to date on the latest automotive news, reviews, car culture, and vehicle shopping advice.