Some automotive and financial experts say new-vehicle sales will slow if the Bank of Canada increases interest rates. Others suggest automakers will bite the bullet and stick with financing incentives.
Increasingly strong signals from the Bank of Canada that rock-bottom interest rates are nearing an end might play a role in slowing down the furious pace of car sales, says Equifax Canada.
June sales were up 5.75 per cent over the same month a year ago, according to the Automotive News Data Center in Detroit. Automakers sold 204,386 vehicles in June and have now sold one million vehicles through the first six months of 2017, putting them on pace for a record 2.1 million units sold this year.
Until the rate takes effect, at least one analyst thinks strong sales will continue.
"Higher rates may actually lead to a short-term blip as dealers and buyers look to take advantage of rates now," said Bill Johnston, Equifax Canada's vice-president of data and analytics. "(But) over coming months, the cumulative rate hikes will begin to slow down auto sales as manufacturers will find it more difficult to offer the long-term promo rates."
Carlos Gomes, a senior economist and auto analyst at Scotiabank, says it will be a while before a rate hike affects sales.
“It increases the cost of incentives, such as zero-per-cent financing, but it will not keep the industry from setting an annual record this year,” Gomes told Automotive News Canada. “The impact of higher rates will only be felt in 2018, as rates continue to move higher.”
Michael Hatch, chief economist at the Canadian Automobile Dealers Association, says he doesn't see a rate bump having a huge impact on prospective buyers in the near term.
"For one thing, any rate increase in the short term is likely to be very small, in the 25-basis point ballpark," he said, adding that the delinquency rate on auto loans continues to sit at historically low levels.
A TransUnion Canada report for the first quarter of 2017 showed that while average auto lending balances rose 2.75 per cent year-over-year, at the same time, serious delinquency rates remained essentially flat at 1.70 per cent.
George Iny, president of the Automobile Protection Association, said he expects car makers to continue to keep interest rates low on new vehicles because it makes long-term car loans of seven to eight years more palatable to the public.
"It's a bad loop if they get into it, if they raise rates, because it will then make the long loan unattractive," he said. "And then people won't take the vehicle at all."
Greg Layson and the Canadian Press contributed to this report.