Canada’s weak auto sales continues: Scotiabank
Canadian PlasticsAutomotive Economy Market Forecast
Auto sales growth has also slowed down markedly in the U.S. and Mexico, a new report from Scotiabank says.
Auto sales in Canada fell by its sharpest level in nearly two years at 3.6% year-over-year (y/y) in July followed by a 1.6 y/y contraction in August, a new report from Scotiabank says, which marked the sixth consecutive month of y/y declines.
According to Scotiabank’s latest Global Auto Report, the auto market downturn stands in contrast to the strength in the Canadian economy which expanded by an annualised rate of 2.9 per cent quarter-over-quarter expanding in the second quarter after a weak start to the year.
“The ratio of new vehicle sales to prime-age population is still near record highs at the same time as rising interest rates may be restraining big-ticket purchases by Canadian households,” Scotiabank said. “Double-digit y/y increases in fleet purchases prevented bigger declines in July and August with retail sales posting large y/y declines in the summer months. So far in 2018, vehicle sales in Canada have declined by 0.9% y/y compared to the first eight months of 2017, which is in line with expectations of a slight decline in sales in 2018 after record levels last year.”
Ontario – which accounts for over 40 per cent of vehicle purchases in the country – posted a slight y/y increase in sales in July, the report said, while vehicle purchases in Alberta and B.C. – which represent over a fifth of the Canadian auto market combined – fell by over 10 per cent y/y in each province. “The sales contraction in B.C. is the steepest since 2009 and marks a pointed reversal from 2017 when auto deliveries expanded by 7.1 per cent,” Scotiabank said. “Purchases in Alberta show a similar pattern after 11.4 per cent growth last year.”
In the U.S., meanwhile, vehicle purchases fell by 3.4 per cent y/y in July, after June’s massive gain of 5.3 per cent y/y, and remained relatively flat in August with 16.6 million units sold in annualised terms, which marks the first occurrence of back-to-back sales under 17 million annualised units since August 2017. “A drawdown of inventories may have dampened down sales after the first half of the year saw a 2 per cent y/y rise compared to the same period in 2017,” Scotiabank said. “Dealers’ stock of the Ford F-Series truck, the highest selling automobile in the U.S., have fallen to 70 days’ supply as of August 2018 from 83 days’ supply twelve months back. Similarly, the Chevy Silverado lost the second highest-selling vehicle spot in August as inventories for the 2019 Silverado model failed to meet demand in addition to a reduction in incentives across GM vehicles, especially on trucks.”
And in Mexico, auto sales fell in y/y terms for a 15th consecutive month in August, as the industry faces headwinds of slow growth in real wages and high lending rates. “Banco de Mexico’s policy rate remains at its highest level since the pre-financial crisis in the face of high consumer-price inflation following a relatively steep depreciation of the peso,” Scotiabank said. “Further, uncertainty surrounding the renegotiation of NAFTA and the July presidential elections may have affected consumer confidence.” The U.S. and Mexican teams have reached a tentative agreement on rules of origin on automobiles, Scotiabank noted, which could bring the conclusion of NAFTA closer, and alongside rising wages lift motor vehicle sales in the last third of 2018.