Canadian automotive sector will face decreasing demand, report says

As the result of declining demand from American car buyers and increasing trade uncertainty, automotive production is expected to grow by only 0.8 per cent this year, according to the Conference Board of Canada’s latest outlook.

The Board’s newest report expects a U.S. sales decline of almost 1.5 million vehicles in 2018 from record sales of 17.46 million units in 2016. Sales are expected to average 16 million vehicles in the U.S. over the next five years.

Demand will be further compressed because U.S. millennials are buying vehicles at half the rate of Americans aged 35 to 54.

The slow pace of growth follows strong industry performance over much of the last decade.

“New vehicle sales in the United States are coming off the peak reached in 2016 as pent-up demand from the aftermath of the global recession is satisfied,” Sabrina Bond, an economist at the Conference Board, said in a statement. “Going forward, demand for new vehicles will continue to ease as a result of the aging of the Baby Boom population in the U.S. and Canada and urban millennials’ purchasing fewer vehicles due to ready access to ride-sharing.”

Potential changes to NAFTA’s rules of origin could also take a “sizable bite” out of Canadian auto exports and manufacturing investment, Bond said. According to the report, the Canadian auto industry’s high share of exports has left the sector vulnerable in ongoing trade negotiations.

Though production is expected to expand slightly, the Conference Board forecasts the sector’s profits will decline. Compared to pre-tax industry earnings of $1.9 billion in 2017, the report said, lower revenues will actually translate to profits of $1.6 billion in 2018 in spite of lower costs.