Buyers proved their confidence in Canada’s auto market in May by not only buying 217,123 vehicles but also by paying more for them, says J.D. Power and Associates.
May sales were up 11.3 per cent over the same time last year, when there were 195,080 units sold.
While incentive growth essentially remained flat in May at about $5,800 compared with $5,685 during the same month a year ago, the average price of both non-luxury and luxury vehicles increased, said J.D. Power automotive senior manager Robert Karwel.
The price of a non-luxury vehicle was up $1,363 while the average price of a luxury rose $1,643.
“People not only bought more cars, they paid more for them too, because they likely chose to spend more,” Karwel said. “That clearly demonstrates consumer confidence in new vehicle purchases.”
Karwel said that while no automaker has dialled back incentives, they remain high. The proportion of incentive of the average vehicle price is right around 15.5 per cent, he said.
“This high level of incentives is helping sustain affordability,” he said.
Scotiabank senior economist Carlos Gomes also attributed the strong May sales figures to discounting.
"I would call it incentive heaven," he told Reuters.
Gomes said he now expects another record-breaking year for Canadian auto sales. He plans to revise his April forecast that said Canadian auto sales would decline slightly in 2017 to about 1.94 million vehicles, from a record-breaking 1.97 million units in 2016.
Karwel said “the shocker” of the month was the “very pronounced swing” in the number of people who paid cash for a non-luxury vehicle. The percentage jumped three points to 17.6 per cent over 14.6 a year ago. People either saved and paid cash, used a line of credit or got some other financing from a lender.
Karwel said that while cash deals aren’t a trend yet, they could become concerning for automakers.
“Clearly banks are muscling more into the auto lending sphere, and not just in traditional ways with non-captive loans,” Karwel said. “I think what this means to dealers is potentially more stress on their ability to make reserve and back-end profit, and for manufacturers, erosion of captive business, which is a huge profit centre for them.”
Long-term lending decreased in May compared with the same month last year. Karwel said that is good but that the number of long-term loans remained high in the non-luxury market where almost 50 per cent of all loans were 84 months or longer in May.
All of J.D. Power’s data is retail only, “so it truly speaks to what Canadians are really doing,” Karwel said.
Reuters contributed to this report.