Cana­dian auto sales show no signs of slow­ing down

Con­sumer appetite for lux­ury cars re­mains high

The Hamilton Spectator - - BUSINESS - MICHAEL LEWIS

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

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