Skip to main content
Sister Publication Links
  • Automotive News
  • Automotive News Europe
  • Automotive News Mexico
  • Automotive News China
Subscribe
  • Subscribe
  • Newsletters
  • login
  • HOME
  • NEWS BY BRAND
    • Aston Martin
    • BMW
    • Daimler
    • Fiat Chrysler
    • Ford
    • General Motors
    • Honda
    • Hyundai
    • Mazda
    • Mitsubishi
    • Nissan
    • Subaru
    • Tata
    • Tesla
    • Toyota
    • Volkswagen
    • Volvo
    • Mini
    • Rolls Royce
    • Mercedes Benz
    • Smart
    • Alfa Romeo
    • Chrysler
    • Dodge
    • Ferrari
    • Fiat
    • Jeep
    • Lancia
    • Maserati
    • Ram
    • Lincoln
    • Buick
    • Cadillac
    • Chevrolet
    • GMC
    • Acura
    • Kia
    • Infiniti
    • Jaguar
    • Land Rover
    • Lexus
    • Audi
    • Bentley
    • Bugatti
    • Lamborghini
    • Porsche
  • News
    • Auto Shows
    • Photo Galleries
    • Automakers
    • Suppliers
    • Retail
    • Government Relations
    • Trade and Tariffs
    • Technology
    • Labour
    • Lawsuit challenges Trump's authority on steel, auto tariffs
      Automaker-supplier relationships take a hit
      Ghosn's ace for growth: Suppliers
      In-demand tech puts wary suppliers on guard, study finds
    • U.S. metal tariffs sting Magna, but USMCA brings promise of additional work
      U.S. tariffs on steel, aluminum could be gone in weeks, ambassador says
      Magna posts record Q4 revenue, but profits and margins decline
      Ontario aims to replace GM with Magna, Martinrea or other in Oshawa
    • Kia dealer Benny Leung a true Canadian-immigrant success story
      AutoCanada sues former CEO Patrick Priestner for $250M over dealership acquisitions
      Rolls-Royce names BMW exec its new sales VP for Americas
      How GM's Oshawa closure could affect sales, dealerships
    • Level 3 autonomous vehicles now allowed on Ontario roads
      Ford adds 149,652 vehicles in Canada to Takata airbag recall
      Honda wants recall notices to be part of registration renewals
      All wet: Rain could delay the arrival of self-driving future
    • U.S. metal tariffs sting Magna, but USMCA brings promise of additional work
      U.S. tariffs on steel, aluminum could be gone in weeks, ambassador says
      A look at which automakers in Canada meet USMCA's 75% content rule
      Canada seeks Pelosi's support in push to lift U.S. metal tariffs
    • Vehicle screens go super-sized at CES as tech catches up
      All in a day's work
      Ford commits US$4 billion to autonomous vehicles, forms new subsidiary
      Massive data breach at Canadian company hits several automakers, report says
    • GM Canada says it will find 2,400 jobs for Oshawa workers
      FCA to idle Ontario minivan plant for 8 days, union says
      Unifor calls for boycott of GM vehicles if automaker closes Oshawa plant
      Unifor's Jerry Dias, Magna's Don Walker named Automotive News All Stars
    • Toronto Auto Show
  • Opinion
    • Blogs
    • Chevy's 2019 Blazer: More Camaro, less Equinox
      Trump's troubling definition of victory
      The 2019 Nautilus: Lincoln's Cadillac Super Cruise fighter?
      What Cadillac dealers can expect from Steve Carlisle
  • EVENTS, WEBINARS & AWARDS
    • 2018 Auto News Canada All Stars
    • Best Dealership To Work For
    • Canada Congress
    • Webinars
    • More women in dealerships is just plain good for business
    • VIDEO: Why Ford's Hinrichs is bullish on USMCA
      Ontario aims to replace GM with Magna, Martinrea or other in Oshawa
      Dealers told standalone stores 'difficult to remain profitable'
      Ford's Joe Hinrichs: Plant closures have 'cascading effects' on industry
  • +MORE
    • NEWSLETTERS
    • SUBSCRIBE
    • CLASSIFIEDS
    • CONTACT US
    • DIGITAL EDITION
MENU
Breadcrumb
  1. Home
  2. Canada
December 04, 2018 12:00 AM

Interest rate hikes hurting car sales, Canadian economy

Chris Fournier
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    Bloomberg

    Plunging automobile sales add to evidence that higher borrowing costs are beginning to eat into Canadian economic growth, possibly faster than the central bank expected.

    Light vehicle sales dropped 8.2 per cent November from a year earlier, according to the Automotive News Data Center in Detroit.

    It was the largest decline since 2009, according to a report Monday by DesRosiers Automotive Consultants Inc. Outside the financial crisis, the decline was the biggest since 2004. Meanwhile, Bank of Canada data show growth in residential mortgages decelerated to 1.38 per cent in September on an annualized three-month basis, the weakest pace since 1982.

    The central bank has raised borrowing costs five times since July 2017. Policy makers are widely expected to leave the benchmark rate on hold Wednesday at 1.75 per cent, however more hikes are predicted for next year. The median forecast in a Bloomberg survey of economists shows the rate at 2.5 per cent by the end of 2019.

    Royce Mendes warns the economy is already feeling the pain, and the central bank may be underestimating the impact of previous increases. The Canadian Imperial Bank of Commerce economist said declines in auto sales and residential investment -- which contracted for a third-straight quarter, down an annualized 5.9 per cent -- are showing up sooner than expected, with the bulk of the effects still to come.

    “We’re starting to the signs that the economy cannot handle interest rates at much higher than current levels,” Mendes said by phone from Toronto. “Things are happening at least a little sooner versus previous cycles” because of how leveraged households are, he said.

    RATE SENSITIVITY

    The relative importance of residential investment and vehicle purchases -- two of the most rate-sensitive sectors -- has grown over the years. The sectors now account for more than 11 per cent of the economy, versus 9.7 per cent when the last major tightening cycle began in 2004, and an average of about nine per cent since 1961, according to CIBC calculations.

    Even with the drop in car sales in November, 2018 is on pace to be the second-highest on record. That makes sense, given interest rates are still close to historical lows, and population growth is fuelling an upward trajectory in the level of sales -- a trend that’s been in place since the 1940s.

    Canada’s housing market, meanwhile, has slowed since the latest rate hikes began, a period that coincides with changes to mortgage-lending rules by the country’s banking regulator. While it’s difficult to determine how much of the slowdown is attributable just to higher rates, based on previous estimates of how much the rule changes alone would account for, “the slowdown in lending has been more precipitous,” Mendes said.

    Read more about where traders think Bank of Canada rates are headed

    Governor Stephen Poloz said at the end of October rates would need to rise to a neutral stance, or somewhere between 2.5 per cent and 3.5 per cent. He told lawmakers the central bank wants Canadians to understand that three per cent would be just a “normal thing,” and it “shouldn’t feel difficult.”

    But the latest data may give Poloz pause. “It means for the Bank of Canada that they’re not going to be able to make good on their stated desire to get to the 3 per cent neutral rate,” Mendes said, adding he expects a “softer tone” from the governor on Wednesday.

    “The key point is that we haven’t seen the full effects of even the past interest rate hikes,” Mendes said. “We’re barely getting to peak impact of the first interest rate hike taken out in July 2017. All those subsequent hikes still have time to work their way through the economy and show up in slower growth.”

    Recommended for You
    Digital Edition
    Thumbnail
    View latest issue
    See our archive
    Sign up for free newsletters
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please select at least one newsletter to subscribe.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Get Free Newsletters

    Sign up today for our Weekly Newsletter, Daily Newsletter and Breaking News Alerts. We'll deliver the news you need to know straight to your inbox.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Subscribe Today

    An Automotive News Canada subscription includes 12 monthly issues – delivered in print to your doorstep, and digitally to your inbox – plus unlimited, 24/7 access to our website.

    Subscribe
    Connect With Us
    • Facebook
    • Twitter
    • Instagram

    Our Mission

    The Automotive News Canada mission is to be the primary source of industry news, data and understanding for the industry's decision-makers interested in Canada.

    Contact Us

    PO Box 243
    Station A
    Windsor, ON
    N9A 6K7

    1-877-812-1257

    Email Us

    Resources
    • About us
    • Contact Us
    • Digital Edition Archive
    • Advertise with Us
    • Reprints
    • Ad Choices Ad Choices
    • Sitemap
    Legal
    • Terms and Conditions
    • Privacy Policy
    Copyright © 1996-2019. Crain Communications, Inc. All Rights Reserved.
    • HOME
    • NEWS BY BRAND
      • Aston Martin
      • BMW
        • Mini
        • Rolls Royce
      • Daimler
        • Mercedes Benz
        • Smart
      • Fiat Chrysler
        • Alfa Romeo
        • Chrysler
        • Dodge
        • Ferrari
        • Fiat
        • Jeep
        • Lancia
        • Maserati
        • Ram
      • Ford
        • Lincoln
      • General Motors
        • Buick
        • Cadillac
        • Chevrolet
        • GMC
      • Honda
        • Acura
      • Hyundai
        • Kia
      • Mazda
      • Mitsubishi
      • Nissan
        • Infiniti
      • Subaru
      • Tata
        • Jaguar
        • Land Rover
      • Tesla
      • Toyota
        • Lexus
      • Volkswagen
        • Audi
        • Bentley
        • Bugatti
        • Lamborghini
        • Porsche
      • Volvo
    • News
      • Auto Shows
        • Toronto Auto Show
      • Photo Galleries
      • Automakers
      • Suppliers
      • Retail
      • Government Relations
      • Trade and Tariffs
      • Technology
      • Labour
    • Opinion
      • Blogs
    • EVENTS, WEBINARS & AWARDS
      • 2018 Auto News Canada All Stars
      • Best Dealership To Work For
      • Canada Congress
      • Webinars
    • +MORE
      • NEWSLETTERS
      • SUBSCRIBE
      • CLASSIFIEDS
      • CONTACT US
      • DIGITAL EDITION