After roughly a year of watching the loonie drop, Unhaggle says changes in incentives will likely be the first move automakers make to cope with upward pricing pressures on imported vehicles.
But with currency values hovering at or below the 75 cent mark since September compared to the U.S. greenback, moderate MSRP correction is likely to happen sometime this year.
“We regularly see minor MSRP price increases throughout the model year – generally less than two per cent,” explains Unhaggle CEO Andrew Tai.
“This trend has been consistent with history, notwithstanding much larger proportional drops in the loonie. We do not expect a sudden and massive change in vehicle prices, rather the frequency and size of regular MSRP changes may increase gradually.”
It has been a fairly sharp and consistent fall for the Canadian currency following its last major high of $1.05 versus the U.S. dollar in July 2011. It has virtually been one large decline since then and included a close below $0.70 this past January.
The shaky currency situation has forced price increases across several industries and products in recent months and, will logically extend to automobiles in a significant way should the situation continue.
Reid Bigland, president of FCA Canada, said that if the dollar stays below 75 cents, the market would eventually feel the effects of pricing pressure on all new cars coming into Canada.
“Just as we saw back in 2007 when the Canadian dollar was nearly $1.10 to the U.S. dollar… there will be more upward pressure on pricing, and really for that matter, everything that comes out of the U.S. market whether its oranges or automobiles.”
Bigland, who noted that pricing doesn’t adjust on a dime, said the repatriation of profits back into U.S. dollars for most automakers would eventually be felt in showrooms across the country.
According to Unhaggle, the average new vehicle transaction price in 2015 in Canada was $30,288. Tai offered some specific examples of recent MSRP increases over the course of January and February:
• 2016 Lexus IS 300 from $41,700 to $41,900
• 2016 Toyota 4Runner Limited 7 Passenger from $50,490 to $50,790
• 2016 Ram 1500 SLT Crew Cab 4×4 5'7″ Box from $46,795 to $47,295
• 2016 Chrysler 200 LX from $24,895 to $25,395
He said the relative size of the price increases seen to date have been consistent with history and are negligible in the context of longer-term lease and finance terms.
A $500 price bump on a 72-month finance term at 2.99 per cent is just $7.60 a month meaning small corrections would have little material impact on overall affordability for consumers.
And while automakers might be feeling the pinch of profit repatriation, Tai suspects competitive concerns are holding many back from material changes in pricing for fear of losing market share.
The canary in the coal mine would likely be incentive programs.
“If weakness in the loonie continues, we believe incentives are an easier lever for automakers to control given they are updated monthly or more often in some cases,” he says.
“This helps automakers avoid the need to make significant revisions in MSRP that would be more likely to attract negative publicity. Incentives can also be adjusted more easily as market conditions change.”