Canadian auto sales expected to total 2 million units in 2018: Scotiabank

Canadian passenger vehicle sales exceeded 2 million units for the first time ever last year, a new report from Scotiabank says, climbing to an annual record of 2.04 million units.

Additionally, purchases accelerated further last month, surpassing an annualized 2.1 million units and setting an all-time high for January, Scotiabank said in its most recent Global Auto Report. “However, an expected moderation in economic growth driven by slower job creation and weaker gains in household wealth, are likely to reduce full-year 2018 sales to 2 million units, putting an end to five consecutive annual records,” the report said. “Accelerating price increases for new cars and light trucks have reduced new vehicle affordability to the lowest level of the past decade and will likely also weigh on purchases, especially as real income gains soften from last year’s robust performance.”

ONTARIO TO LEAD SALES LOWER

Ontario is expected to account for most of the decline in purchases this year, Scotiabank said, undercut by a slowing housing market and a record low saving rate. “Car and light truck sales in the province climbed to a record 847,000 units in 2017, but are expected to decline to 821,000 units this year, pressured by nearly an 80% drop in household savings over the past year,” the bank said. “The savings rate in Ontario has plunged to only 0.6%, nearly 80% lower than the national average of 2.6%.”

Sharp gains in home prices across Southern Ontario helped boost auto sales in recent years, the report said, as many Ontario households tapped into home equity loans, to boost their purchasing power. “Data from the five largest Canadian banks indicate that Ontario households accounted for nearly 80% of the increase in home equity loans in Canada over the past five years,” Scotiabank said. “In fact, home equity loan growth accelerated in Ontario to 11% year-over-year (y/y) in late 2017, nearly five times the pace of the previous three years and roughly quadruple the advance in the rest of Canada, as home price appreciation accelerated in the Golden Horseshoe through last year.” Slower employment growth will also contribute to an expected 26,000-unit decline in auto sales across the province this year, accounting for two-thirds of the overall Canadian decline, Scotiabank said.

YOUNG VEHICLE FLEET IN QUEBEC

Sales in Quebec edged down 1% last year to 453,000 units, despite the fastest job creation since 2010. “We expect purchases to ease to 445,000 in 2018, as employment growth moderates and demographic headwinds continue,” Scotiabank said. “Despite a pickup in international immigration, retaining these new arrivals has been challenging. Population growth in Quebec remains below the national average, with the number of potential vehicle buyers expected to be flat over the coming year, compared with a projected gain of 0.5% for the rest of Canada.” Quebec also has one of the youngest vehicle fleets in the country, due to heavy reliance on leasing. “Leases account for nearly 40% of household volumes in Quebec, compared with only 23% in the rest of Canada.” The report said. “As a result, more than 52% of all cars and trucks on the road in Quebec are less than eight years old, compared with less than 44% in the rest of Canada.”

SALES TO EDGE DOWN IN B.C.

Vehicle sales in B.C. jumped 7.5% last year to a record 235,000 units, Scotiabank said, buoyed by the strongest job growth since 1994. “Payrolls are expected to continue to outperform in 2018, but service sector employment, which accounts for 80% of the provincial total, has started to soften and is likely to dampen new vehicle sales to 231,000 units in 2018,” the report said. “Meanwhile, the percentage of B.C. households that purchased a new car or light truck last year was the highest in nearly three decades.” Slowing export growth will also hold back economic activity and auto sales in 2018, the report forecast, as exports account for nearly 40% of overall economic activity in the province compared with 31% for the rest of Canada.

SALES GAINS TO MODERATE IN ALBERTA

Alberta led the auto sales gains last year, with full-year volumes jumping 12% to 245,000 units, the fourth-highest level on record and only 9% below the 2014 peak. “The rebound was driven by a 66% surge in drilling activity from the depressed level of the previous two years,” Scotiabank said. “We expect a further small advance in purchases to 248,000 in 2018, as employment growth has picked up to 2% y/y and has fully recovered all the job losses from the recent oil shock.” Business purchases of new vehicles are also on the upswing in Alberta, the bank said, accounting for more than half of the increase in overall sales last year. “However, while companies will continue to renew their vehicle fleets, drilling activity has begun to flatten out, and will not provide much upside support in 2018,” Scotiabank said.

FLAT VOLUMES LIKELY IN MANITOBA & SASKATCHEWAN

Finally, vehicle sales posted a double-digit increase across the Prairies in 2017, Scotiabank said, as volumes strengthened in all three provinces, alongside a rebound in commodity prices and the strongest labour market in Manitoba in fifteen years. “We expect sales to be largely flat in Saskatchewan and Manitoba in 2018, as job growth slows,” Scotiabank said.