Canadian auto sales show no signs of slowing down

Consumer appetite for luxury cars remains high

TORONTO — While growth in passenger vehicle sales in Canada is expected to plateau after a multi-year boom, data so far points to ongoing strength thanks in part to better than expected job creation and a consumer appetite for luxury cars and high end SUVs that has shown no sign of waning.

“The industry is stronger than we were expecting,” said Scotiabank Economics’ senior economist Carlos Gomes.

He added that a spending pullback by highly leveraged consumers has yet to fully materialize, while a modest strengthening of the loonie against the U.S. dollar compared to a year ago moderated the impact of manufacturers’ price increases.

Add in historically low interest rates, gas prices well off recent peaks along with the home equity and stock portfolio gains that have underpinned explosive growth in luxury vehicle sales and the market outlook has more upside potential than down, said industry analyst Dennis DesRosiers.

He forecast Canadian new vehicle sales to hover around the 1.9 million unit threshold for the next few years, but says a slowdown isn’t in the cards thanks in part to growing household wealth and the fact that 11 million vehicles on the road in Canada are more than 10 years old.

The principle of Richmond Hillbased DesRosiers Automotive Consultants said other than the demand for SUVs and light trucks, however, the mass market for new vehicles is “flat-lining.”

But growth on the luxury side can maintain overall sales at current, historically high levels, he suggested, adding that luxury sales are sustainable given the compelling lineup of new products and technologies as well as the buildup of asset wealth that acts as a hedge against economic downturn.

He called the luxury segment real estate sensitive, with a correction in house values — “the biggest downside threat.” The luxury segment has been heating up and according to Scotiabank, accounted for nearly 60 per cent of the year-to-date increase in overall volumes in Canada, five times its normal share.

Concentrated in British Columbia and Ontario, luxury volumes surged nearly 25 per cent in British Columbia as of March and have advanced 15 per cent in Ontario, al- though Scotiabank expects these growth rates to ultimately moderate.

In Canada, passenger vehicle sales soared over the past two years in particular, climbing to 1.95 million units in 2016 amidst a record year for global sales and a fourth consecutive annual record. Sales accelerated further in January and February as volumes remained above an annualized two million units.

Sales have been expected to move down to 1.94 million for all of 2017 on price increases for new cars and light trucks and on data that shows the number of potential vehicle buyers advancing in 2017 at the slowest pace in several decades, according to a Scotiabank report in March. It said sales gains in Alberta and Saskatchewan are expected to be more than offset by declines in Ontario, Quebec and Atlantic Canada.

April sales fell 1.6 per cent yearover-year to 197,203 units but that still represents the second best April in history, said David Adams, president of industry association Global Automakers of Canada.

On a year-to-date basis the association says auto sales in Canada were 2.5 per cent ahead of last year’s record-setting level, with April’s levels almost 10 per cent ahead of the five-year average for vehicle sales i n the month. Truck sales comprised 66.4 per cent of all sales in April.

The bestselling vehicle, and passenger car, in April remained the same again for April, with the Ford F-Series and Honda Civic reprising their respective roles as bestselling truck and passenger car.

In the U.S., where subprime loans constitute a much larger slice of the financing market for autos than in Canada and where interest rates have started to nudge up, the market is also entering a stage of slowing growth that appears more pronounced than in Canada.

New car loans for subprime borrowers, for example, fell in the first quarter to the lowest level in two years, according to the Federal Reserve Board’s quarterly report on household debt and credit.

Borrowers with the highest credit scores made up nearly a third of new auto loan originations in the first quarter as lenders target the safer deals.

While caution may be good for banks’ balance sheets, it doesn’t offer much relief for automakers, who relied on cheap credit to fuel a seven-year stretch of booming sales, according to a Bloomberg Intelligence report.

Now they’re boosting discounts and cutting production to address swelling inventory on dealer lots. Ford Motor Co. said Wednesday it’s cutting 1,400 jobs in North America and Asia to improve profits as the U.S. auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016.

The industry is stronger than we were expecting. CARLOS GOMES