Auto sales in Canada fall in June amid slowing economy

Trade tensions with U.S. and tighter lending conditions also blamed for drop in demand

Slowing economic growth, tighter lending conditions and anxiety over the fallout from a trade rift with the U.S. helped fuel a decline in Canadian new auto sales in June, the first year-to-date pullback since March 2013.

Overall sales fell 1.6 per cent, the fourth consecutive monthly drop, as a 1.4-percent gain in sales of light trucks was offset by an 8-per-cent tumble in passenger car sales.

Full-year results are likely to finish flat or marginally below 2017’s record high of 2.04 million units, DesRosiers Auto- motive Consultants Inc. said in its June sales snapshot and commentary released this week.

It says 1,036,677 new light vehicles were sold in Canada in the first six months of the year, down 0.2 per cent from the six-month total of 1,039,068 in the same period of 2017.

Among the top three new-vehicle sales leaders, General Motors recorded the only June increase at 1.8 per cent, while Ford retained the overall sales lead in Canada through the first six months of 2018.

“We expect total sales to edge down slightly in the second half of the year and bring the annual total to just above two million units sold ... in line with an expected moderation in household expenditures,” said Juan Manuel Herrera Betancourt of Scotiabank Economics.

He said the results have been factored in by the Bank of Canada, which remains “locked in” for an interest rate hike next week of 25 basis points to 1.50 per cent and continued increases to 2.50 per cent by the end of 2019.

The auto sales results come as the Bloomberg Nanos Canadian Confidence Index showed continued deterioration, down 6.2 per cent in June — the largest annual decline since September 2015.

The share of Canadians who see the economy weakening over the next six months jumped to 41.3 per cent in June, the highest since January 2016, according to the index.

Economy-wide growth is decelerating in Canada to 2 per cent from a breakout year in 2017, when growth hit 3 per cent, while growth is accelerating in the U.S. owing to exceptional fiscal stimulus, among other things, Betancourt said in an email.

Canadian households have scaled back expenditures so far this year after expanding last year at their fastest pace since 2010, he said.

Given this backdrop, Canada’s auto sales held up well in June, said David Adams, president of industry association Global Automakers of Canada, who added that sales may still be on track for another record year.

“But there are some signifi- cant headwinds,” he noted, “not the least of which are the steel and aluminum tariffs imposed by the Trump administration and the possibility of 25-percent tariffs on vehicles imported into the United States.”

Going forward, demand for new vehicles will continue to ease due to the aging of the baby boom population in the U.S. and Canada, as well as the purchasing of fewer vehicles by urban millennials because of ready access to ride-sharing, Conference Board of Canada econo- mist Sabrina Bond said in a report.

“Meanwhile, the industry will have to contend with potential changes to rules of origin in the existing NAFTA, which could take a sizable bite out of Canadian auto exports and investment in manufacturing.”

President Donald Trump has threatened tariffs on auto imports to the U.S. that would cut Canadian auto output dramatically and shave a full percentage point from national economic output, CIBC Capital Markets said this week.

U.S. auto sales, meanwhile, rose in June amid strengthening consumer confidence as sales of SUVs, crossovers and pickup trucks offset falling sedan purchases — although analysts say auto sales in the U.S. have likely plateaued and are on track to remain flat for 2018 compared to last year.

“We expect total sales to edge down slightly in the second half of the year.” JUAN MANUEL HERRERA BETANCOURT SCOTIABANK ECONOMICS