Canadian vehicle sales forecast to level off in 2016

Canadian auto sales climbed a stronger-than-expected three per cent in 2015 to a record high 1.90 million units – but volumes in 2016 will be largely flat, according to the latest Global Auto report from Scotiabank.

“Diverging trends between the industrial heartland and commodity-producing regions will balance each other out [in 2016],” the report said. “Stronger employment growth and economic activity in the export-reliant manufacturing provinces will lift volumes in these markets, but deteriorating fundamentals and weakening demographic and income trends will pressure volumes in other regions. However, unless Canadian economic growth falters below last year’s one per cent, we still expect passenger vehicle sales to remain on par with record 2015 volumes.“

Car and light truck sales will continue to be supported by low interest rates and stimulative financial conditions around the world, the report said. “While global equity markets have posted double-digit declines this year and credit spreads have widened significantly for highly-leveraged commodity producers and emerging market companies, overall financial conditions remain healthy for both consumers and most corporations,” it said.

Economic activity and demand for new vehicles will continue to be buoyed by the strongest advance in Canadian non-resource exports since the new millennium, the report continued, as well as by strengthening U.S. demand and a currency which recently fell below 70 cents (US) for the first time since early 2003. “Solid export gains and accelerating household disposable income growth lifted car and light truck sales in Ontario to a record 761,000 units last year, and a further advance to 772,000 units is likely in 2016 as exports gain additional momentum,” the report said. “In particular, auto industry shipments will be lifted by record vehicle sales across North America and rising output at Canada’s largest vehicle assembly plant, following an extended shutdown for re-tooling last year.”

Broad-based manufacturing export gains are also expected to lift vehicle sales in British Columbia and Quebec, the report said. “Vehicle demand in British Columbia will also be bolstered by the largest intra-provincial population inflow in decades,” it said. “Car and truck sales in Quebec climbed a solid six per cent last year, advancing to a record high of 444,000 units as manufacturing employment advanced for the first time since the new millennium. A further increase in vehicle sales to 450,000 units is expected for 2016, as provincial exports gain additional momentum.”

In Alberta, meanwhile, a sharper-than-expected retrenchment in the province’s “oil patch” slashed vehicle sales in the province 12 per cent last year to 236,000 units. “A further slide to 220,000 is projected for 2016, as oil companies continue to curtail their capital expenditures and the labour market weakens amid a large overhang in global crude oil inventories,” the report said.

Vehicle sales in the remaining provinces were in line with expectations last year. “Volumes declined in Saskatchewan and Newfoundland undercut by the downturn in the energy sector, were unchanged in Manitoba, and edged higher across the Maritimes,” the report continued. “We expect sales in most of these provinces to edge down in 2016 due to weak labour market prospects. Manitoba and Nova Scotia are the exception, with small sales gains forecast for both provinces this year.” Car and light truck sales in Nova Scotia rose two per cent in 2015, to a record 54,000 units, with gains accelerating once the shipbuilding contract got underway last September. “Manufacturing activity is also on the upswing, buoyed by the expansion of a tire manufacturing facility at Waterville and rising aerospace shipments,” the report said. “These two industries account for nearly one-third of overall manufacturing employment in Nova Scotia and will buoy labour market activity, helping to lift vehicle sales to 55,000 units in 2016.”