Should Automotive Franchises Worry About Rising Fuel Costs?

With recent studies reporting that fuel prices have doubled since June 2020 [1], and ongoing pressure from government and environmental groups to embrace more environmentally friendly forms of transport, people operating franchises related to the automotive industry may be a little concerned about what the future holds for them. The good news is that at the moment and in the short term, most Canadians do not seem likely to give up their cars for alternative forms of transportation, looking instead to cut costs elsewhere to fund their transport requirements.

This means that whether your business involves selling, maintaining or leasing cars, the current cost of living crisis does not look like it will have as much of an impact on your business as perhaps first envisioned. There are two main reasons this may be the case.

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1. Scale of the country

Canada is a large country, and many people commute long distances from home to work or college. There are few viable alternatives to running their own vehicle in order to minimize travel time and get where they need to be on time.

This, coupled with the rising cost of electricity, is likely the same reason that electric vehicles have not proven as popular in the country as originally anticipated [2].

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2. Freedom of choice

For many people, owning a car represents freedom. It allows you to leave home whenever you want and travel wherever you wish with minimal planning. As long as you have enough gas, you can go wherever you want to. Whether you are looking to enjoy a recreational day trip to the mountains or a weekend away at the coast, owning a car allows you to be spontaneous, and Canadians are willing to absorb higher fuel costs to keep this freedom.

While the costs of driving can continue to be offset against more discretionary expenditure, it is likely that Canadian automotive franchises will not notice significant changes to their consumers' spending habits. However, they should use this time to plan for the future, recognizing that the next generation of young drivers may be more cash-strapped than those who already own vehicles and will therefore be less able and willing to absorb high fuel prices, especially if they are coupled with increased purchase costs due to the rising prices of raw materials and manufacturing.

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[1] https://globalnews.ca/news/8899452/gas-prices-canada-vehicle-breakdown/

[2] https://globalnews.ca/news/8776540/canada-electric-vehicle-popularity-federal-sales-target/#:~:text=Across%20the%20whole%20year%2C%2086%2C000,in%20100%20new%20cars%20sold