Higher car expenses leading more Canadians to make changes to their driving

Is your car starting to feel more and more like a drain on your funds? You’re not alone. A recent survey commissioned by RATESDOTCA and BNN Bloomberg using Leger confirmed 37% of Canadians are considering making changes to their current driving routines. These changes involve driving less to save on gas, delaying car repairs, or even downsizing their vehicle due to affordability.

How much do Canadians spend on their car?

For more than half (55%) of Canadian drivers, monthly costs related to their cars are under $500, and 62% of them have no need to make any changes to their car affordability plan.

A fifth (20%) say their car-related expenses lie between $501 to $750 and 10% spend between $751 to 1,000. For both groups, the majority (40%) are opting for changes in their car upkeep.

People with car costs exceeding $1,000 are less common, representing four per cent of respondents. One per cent of respondents spend between $1,501 and $2,000, and two per cent even more than that.

Older Canadians aged 55 and up make up the majority of those who spend the least amount on their cars each month. That may be because they are likelier to be financially stable, often having paid off mortgages and fewer outstanding loans. Additionally, their smaller households—often empty nests—mean that they have no need for SUVs or larger cars.

In contrast, younger Canadians (48%) report having higher costs. Those under 55 opt for larger cars to accommodate growing families or active lifestyles, may be more comfortable with debt, or simply drive more.

Because of these higher car costs, younger Canadians are also the group most likely to make changes to their driving practices, including driving less, switching to transit, or trading in their cars for a cheaper model.

Related: How much do you need to make to afford a car in Ontario?

Over a quarter of Canadians driving less to cut back on gas

In October 2022, at the height of the pandemic, Canadians were paying, on average, 171.5 cents a litre at the station. While that cost has slowly crept downwards, we’re still a long way off from the pre-pandemic averages of the low 100s.

Patrick De Haan, Head of Petroleum Analysis at GasBuddy, an app that crowdsources the locations of cheap gas stations across North America, expects gas prices in 2024 to be lower than the highs we saw coming out of the pandemic — but by a modest margin.

“While not a huge amount, 2024 will see a slight dip in the yearly average,” he says. “There may be a couple cents a litre we save but overall, it’s still going to be another year where prices are above average — but not as bad as what we’ve seen in the last few years.”

Due to stubbornly high prices at the pump, 27% of Canadians reported driving less to save on gas. This attitude is consistent with drivers of all ages, no matter how much their other expenses add up to.

However, drivers in rural regions have fewer options than city drivers: These are areas where access to public transit is less developed and gas prices are typically higher.

According to the survey, 85% of respondents living in rural areas own and drive their own vehicle, compared to 64% of respondents living in urban areas. Prices in the territories are also higher, as gasoline needs to be transported from further away.

What’s driving up high gas prices across Canada?

Several factors contribute to the current high gas prices in Canada:

Rising demand

With the world still recovering from the COVID-19 pandemic, travel and driving have increased, leading to a surge in gasoline demand and consequently, higher prices.

“In 2022, when gas prices reached records, it was a culmination of both post-pandemic demands which was through the roof, coupled with pandemic-related shutdowns that really shifted the fundamentals so significantly,” explains De Haan.

Supply interruptions

Recent disruptions in the global oil market, such as the conflict in Ukraine affecting Russian oil exports and hurricanes in the Gulf of Mexico impacting U.S. oil production, have reduced supply and contributed to the rise in gas prices.

Government policies

Government-imposed policies, like taxes on gasoline, can also increase fuel costs. In Canada, the federal government imposes a tax of 10 cents per litre on gasoline, and additional taxes are levied by provinces and territories.

Rising crude oil prices and geopolitical tensions led to increased gasoline prices, with Sarnia, Ontario seeing the largest hike of 20.9 cents per litre in the new year.

“Refining capacity hasn't kept up with demand. The pandemic resulted in the permanent shut down of some oil refineries. So, there was a massive imbalance between supply and demand. That’s why even if oil prices have come down, gasoline prices remain stubbornly high.”

Canadians are lowering monthly costs by switching to cheaper cars 

As car prices soar and interest rates remain at sky-high levels, monthly payments have increased along with them.

According to AutoTrader, the average monthly payment for a used vehicle now stands at approximately $650, a staggering 40 per cent increase compared to the pre-pandemic period.

That’s because the price of used cars have considerably increased. As of October 2023, a used car purchase is the equivalent of 32 weeks of wages, while a new vehicle purchase runs you 55 weeks of earnings. These figures can easily eat into a substantial amount of savings.

As a result, Canadians are re-evaluating whether they really need their dream car, or any car at all. Five per cent of overall survey respondents are planning on switching to a cheaper car, though that number, at seven per cent, is higher among drivers under the age of 55.

Four per cent of respondents are planning on selling their cars altogether.

However, De Haan explains, affordability concerns aren’t likely to convince most people to give up their cars completely. Some Canadians may transition to smaller vehicles, hybrids, or electric cars, thereby reducing their financial impact without undergoing significant lifestyle changes.

“They’ll still drive, but they’ll get smarter with their use,” he adds. “So, consumers reduce their exposure without having to make a monumental shift in their lifestyles.”

Related: With gas nearing $2 a litre in Ontario, is it time to trade in for an electric vehicle?

How the make and model of your car changes how much you pay for insurance

When you’re considering these figures, that muscle car you’re eyeing as your next purchase may slide from a “need” to a “want” – especially considering how it can impact your monthly insurance premiums.

In the insurance industry, CLEAR (Canadian Loss Experience Automobile Rating) numbers are used to evaluate the probability of a specific vehicle being involved in a claim, as well as the potential cost of damage and injuries. These can include luxury or exotic cars, high-end SUVs with hard-to-find parts, and more.

Insurers also consider how likely a car is to be stolen – if the model you’re considering is on the Most Stolen Vehicles List, for example, that could make a big impact on your monthly premiums and/or require pricy anti-theft precautions.

Related: Thefts drive up insurance premiums by 25% on most stolen vehicles

13% skipping out on repairs and maintenance

Close to 70 per cent of Canadians are concerned about their ability to handle unexpected expenses exceeding $1,000, according to an Ipsos poll. And 53 per cent are worried about their capacity to afford sufficient food for their family. In a time like this, it may come as no surprise that more people are opting to postpone vehicle repairs and maintenance.

Thirteen per cent of survey participants between the ages of 18 and 54 have decided to forgo necessary maintenance and repairs for their car – this is also the group most likely to spend more than $750 per month on their cars, at 16%.

However, delaying necessary maintenance can lead to more significant problems down the road, potentially resulting in higher repair costs or even safety issues. Procrastinating on repairs can damage your wheels and rotors, costing you up to 13 times more than if you had just nipped it in the bud.

Your insurance policy may have specific terms about the timeline for repairing your vehicle. Non-compliance could result in claim denial, reduced payout, or even policy cancellation.

Read more: Why your new car's headlights cost $6,500 more than your old car's headlights

Over half of Canadians are continuing as usual

Not everyone’s struggling: 57% of respondents haven’t considered making any changes to their car or their driving habits due to affordability. Although, it’s noteworthy that 63% of them are over the age of 55, and 64% spend less than $500 on their car per month which may explain why no pressing lifestyle changes might be needed.

This group also consists of the higher earners of the respondents. Sixty-three per cent of people who aren’t planning to make any changes to their car expenses earn over $100K in income.

Only 51% of people who earn less than $60,000 per year report that they’re not making any changes due to affordability.

However, in this day and age, couldn’t we all do with a little penny-pinching?

If you’re driving less, consider Usage-Based Insurance

Switching to usage-based insurance (UBI) can lead to substantial savings. If you’re driving less, you’re not only reducing wear and tear on your vehicle but also potentially saving a significant amount on your insurance premiums.

Instead of relying on standard factors like your age, location, and gender, UBI factors in your unique driving habits to calculate your premiums. There are two main types of UBI: pay-as-you-go and pay-how-you-drive.

Pay-as-you-go UBI

Pay-as-you-go UBI links your premiums directly to your vehicle usage. It includes a minimal daily premium, which acts as a retainer for the policy, coupled with an extra charge for every 1,000 km you drive. This model is particularly cost-effective for drivers who use their vehicles infrequently but don’t want to completely stop using them.

Pay-how-you-drive UBI

Pay-how-you-drive UBI employs onboard tracking technology to monitor your driving habits and evaluate the risk you pose as a driver. Your premiums are based on your driving behavior over time. While traditional factors still influence your premium, your individual driving performance plays a key role. Safe driving habits can even qualify you for a discount.

Read more: As insurance premiums rise, quotes for usage-based auto insurance increase by nearly 20%