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In Canada, truly cheap cars are officially a relic of the past. Just five 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.

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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.

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.

RIP to the Chevrolet Sonic (2018); Ford Fiesta (2019); Nissan Micra (2019); Honda Fit (2020); Toyota Yaris (2020); Chevrolet Spark (2022); Hyundai Accent (2022); Kia Rio (2023); and the penultimate nail in the coffin, the Mitsubishi Mirage (2024).

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The Mirage was the final car left in Canada with a manufacturer’s suggested retail price (MSRP) of less than $20,000 before fees: $16,998, to be exact. Dan Dakin, Manager of Communications Strategy and Public Relations for Mitsubishi Motors Canada, tells Driving.ca there’s enough inventory on dealer lots to last a few months into 2025. But the 2024 model year will be the Mirage’s last, and once those final units are gone, they’ll take the final sub-$20,000 MSRP with 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.

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This leaves exactly one subcompact car on Canada’s new-vehicle market, the 2025 Nissan Versa, which has a starting MSRP of $20,798 before fees. (Including destination charges and dealer fees, the 2025 Nissan Versa S is priced at $23,406.) This makes the 2025 Versa the most affordable new car in Canada.

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.

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“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 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.

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“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

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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.

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“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.

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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.

As you dive into shopping for subcompact SUVs, it’s important to know how this segment is structured. Some of these vehicles come with the features Canadians expect from SUVs, such as available all-wheel-drive (AWD), a high seating position, and plenty of ground clearance. Examples include the Hyundai Kona, Kia Seltos, Nissan Kicks, Toyota Corolla Cross, and Subaru Crosstrek. If you want an affordable small vehicle with SUV capability, these are good options.

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However, there’s another, more budget-oriented sub-segment of subcompact SUVs. Many of these are closer to hatchbacks than SUVs, but come with the “SUV” label to make them more appealing. The Hyundai Venue, Kia Soul, and Nissan Kicks Play are examples. These are all more car-like than the options above, and come exclusively with front-wheel-drive (FWD). If your budget is pushing you toward these vehicles, you should know that, apart from some interior height, they’re not giving you much more capability than a subcompact or compact car would.

While the sub-$20,000 car is dead, more affordable cars like the subcompact Nissan Versa or compacts such as the Nissan Sentra, Toyota Corolla, Hyundai Elantra, and the new Kia K4 are still out there. If you’re looking at price above all else, consider these before you look at the cheapest subcompact SUVs.

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Incentives are back, so shop around more aggressively

At the height of the semiconductor shortage, dealers were selling every single vehicle they could get their hands on. This left zero room for negotiation: you paid the price they asked, or they sold the car to someone else. Those days are now behind us, and incentives are starting to resurface. This can take the form of up-front cash discounts and lower interest rates. Some brands also offer incentives for returning customers and discounts for students or active military personnel.

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.

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Get clear on how financing and leasing work

Most people walk into a dealership focused solely on the monthly payment they can afford. Taking the time to learn more about how buying a new car works is very important. It’s not a one-size-fits-all process, and being informed will help you make an arrangement that works for you.

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?

If you need to sell your car well before its financing term is up, you could find yourself in a situation called “negative equity.” This happens when you owe more on your car than what it’s worth on the used-car market. In this situation, you’ll need to carry the remaining balance over into your next car loan, and it will take you longer to get that car into the black. It can be a dangerous spiral into increasing unaffordability.

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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

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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.

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“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

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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.