Canadian auto sales dipped again in October, report says

Canadian auto sales fell back modestly by 0.6% year-over-year (y/y) (nsa) in October, a new report from Scotiabank said, with flat fleet sales providing little offset to a continued decline in retail performance.

“Base effects may be obscuring some modest strength in this month’s sales figures as last October’s sales stood out as the only (relatively) decent month in an otherwise very challenging Fall of 2018,” Scotiabank said in its latest Global Auto Report. “This month’s seasonally adjusted selling rate in fact picked up by 5.7% month-over-month (m/m) – at a pace of 1.98 million saar units – following September’s weak sales month. Nevertheless, little can be read into the pick-up in the sales rate given its high month-to-month volatility.”

Auto financing conditions presented mixed signals, Scotiabank said. “Government bond yields remained elevated for most of October – and generally on par with September’s peak – relative to the summer lows that spurred accelerating sales in those months. Nevertheless, yields still sat well-below last year’s highs which should have provided a lift to year-over-year growth in auto sales.” In fact, consumer credit growth (excluding HELOCs) in September posted an expansion of 7.9% m/m saar, Scotiabank said, which is the fastest pace since end-2015. “As chances of an end-of-October policy rate cut looked increasingly remote as the month advanced, some wait-and-see customers may have been pulled into the market to provide a small boost to sales,” the bank said.

Market fundamentals otherwise remained durable. “Unemployment figures and wage growth readings held steady at 5.5% and 4.3% respectively, though October’s job growth missed market expectations with a loss in full-time jobs only partially offset by part-time job gains,” Scotiabank said. “Home sales were flat nationwide for October, ending a seven-month streak of increases, while aggregate prices rose by 1.8% y/y (nsa). The year-to-date auto sales rate sits at 1.94 million saar units, in line with our 2019 sales forecast.”

Consumer confidence dipped modestly in October, the report said, but levels overall remain healthy. “Federal election uncertainty may have fuelled the dip, along with trade uncertainty that only modestly abated later in the month,” the report said. “Luxury auto brands benefited from a third consecutive month of positive – albeit modest – sales following a steep retrenchment beginning in mid-2018.”

Luxury brand auto sales grew by 1.8% y/y in October, the report said, improving slightly year-to-date performance that is down 7.8% y/y. “There are likely low base effects coming into play following fourteen months of decline though sales are also likely benefiting from wealth effects with the recovery in key housing markets (i.e., GTA, GVA),” the report said. “Nevertheless, it is too early to declare a reversal in the longer term decline, explored more fully here.”

Finally, Scotiabank noted that auto sales diverged across regions in October. “Central Canada and Atlantic Canada saw auto sales gains of about 2.6% and 3.8% y/y respectively,” Scotiabank said. “Whereas Central Canadian auto sales was underpinned by stronger economic foundations with commensurate sales growth in both of its major economies, Atlantic Canada’s auto sales growth continues to reflect last year’s slowdown. All Western Canadian provinces posted drops averaging 7.5% y/y.”