Canada’s first two-million-unit sales year appears to be a sure thing. Industry experts, however, say that record won’t be equaled soon.
Automakers are scheduled to report their December Canadian sales on Jan. 3, 2018.
“I think 2017 will set the bar as the best year ever for a number of years,” said Carlos Gomes, senior economist at Scotia Capital. “Officially, our forecast doesn’t see it repeating in 2018 or even 2019.”
But, Gomes said, so long as the economy doesn’t weaken, car sales will remain relatively strong.
A slight decline from what almost surely will be a record year in 2017 translates to a market of around 1.85 million to 1.95 million vehicles. Larry Hutchinson, CEO of Toyota Canada Inc., said he can live with that.
“Frankly, we can all survive healthily at 1.85 million, or even 1.7 million,” Hutchinson said. “We’re pretty comfortable with our forecast.”
But according to forecasters, factors likely to cause a decline in 2018 deserve close attention.
They include rising interest rates and consumer debt, falling residual values, slower growth of home prices, and a return to “normal” replacement cycles after a period that saw many Canadians fulfill their pent-up demand and thirst for new technology.
‘OUT OF THE PARK’
There’s little question that Canadians will buy two million cars in 2017. Dennis DesRosiers of DesRosiers Automotive Consultants and Brian Murphy of Canadian Black Book are both confident that December sales will push Canada past the two million mark for the first time. Sales at the end of November totalled 1,919,233 units, according to the Automotive News Data Center in Detroit.
Automakers need only to sell 80,767 vehicles in December to reach what DesRosiers called “that tantalizing two million units mark.”
“Absolutely, it’s in the bag,” said DesRosiers.
Murphy, vice-president of research and editorial for Canadian Black Book, added: “We’re going to hit it out of the park.”
But there are some concerns. Robert Karwel, senior manager of the automotive practice in Canada for J.D. Power, said that since the first quarter of 2016 to the same point this year:
- 84-month loans increased, making that the dominant term for financing in Canada.
- Loan values rose to 117 per cent of car values due to negative equity.
- The lease mix rose to just over 26 per cent, with 60-month leasing spurring the growth.
- Dealers’ days to turn for car sales increased by five days to 71.
- Incentives grew on passenger cars.
“These indicators don’t mean there is going to be a crash,” Karwel wrote in an email, “but rather, that Canadians are getting stretched thin, and that there are headwinds against more new vehicle sales next year.”
A sudden change in the dollar, interest rates or the economy could cause the market “to get worse a lot faster,” Karwel said.
Gomes said affordability is another concern: “We’re seeing price increases advancing at a fast- er pace than income growth. And that is one reason we don’t think 2018 will match 2017. Affordability is starting to be pressured after improving for a decade.”
Price growth is likely to drive buyers into the used market, which should grow in 2018, he said.
Residual values have hit a turn- ing point, Murphy added. He said residual values on trucks, which “took off like a rocket in 2013,” are now going down.
But Ben Spatafora, national director of Car Cost Canada, said incentive spend- ing to prop up deals isn’t a worry.
“The advent of cash, the advent of longer-term financing, the lower interest rates, do [cause] an entire industry to accelerate, and it’s obviously sustainable because they are making it work for them.”
Concerns about the industry should be seen in the context of strong sales, observers said.
Said Murphy: “Things are good right now. We should enjoy it.”
Perry Lefko contributed to this report.