An anticipated rate cut by the Bank of Canada should “reinvigorate auto sales” in the latter portion of 2019, Scotiabank Economics predicts in its latest Global Auto Report.
However, it won’t be enough to push new-vehicle sales ahead of 2018’s total.
Scotiabank Economics forecasts sales of 1.94 million units for 2019, below highs of 1.98 million and 2.04 million units sold in 2018 and 2017, respectively.
But, the financial institution said Friday that it sees “modest upside potential in this forecast with the anticipated interest rate cuts.”
“We are now forecasting 50 basis points in rate cuts on an insurance basis by the Bank of Canada with a cut as early as October which should reinvigorate auto sales,” the report reads. “An incipient economic rebound, a more dovish monetary stance, and low base effects from late 2018 should further offset the trend slowdown in auto sales as the year advances.”
Sales of new vehicles in Canada fell an estimated 1.7 per cent in July, marking the 17th consecutive month of decline. The size of the drop is an Automotive News Data Center estimate, reflecting Fiat Chrysler Automobiles Canada’s move to join General Motors Canada in abandoning monthly sales reports.
The data centre put the July tally at 173,680 sales. There has been a seven-month industry decline of 4.8 per cent in 2019, according to the data centre.
Rebekah Young, a director of fiscal and provincial economics at Scotiabank Economics, said she sees “more of a likelihood” that the Bank of Canada would sooner, rather than later, cut interest rates.
“We could very well see that underpinning auto sales in the latter part of the year,” Young said.
The translation of interest rate cuts to economic growth and consumption will be influenced, to a large degree, by external developments particularly south of the border, the auto report reads.
A rate cut would help sales on the retail side, where the downturn has been more pronounced.
“Headline sales figures masked a surge in fleet sales in July,” the auto report said. “Fleet sales posted double-digit growth in July, modestly offsetting the trend slowdown in retail sales which are now down by about five per cent year-to-date.”
Scotiabank Economics didn’t provide hard fleet numbers because they proprietary.
Scotiabank found that with respect to other broad sales trends, truck sales grew by four per cent in July year-over-year, significantly outperforming car purchases which declined by 13 per cent. About three-quarters of new vehicle purchases are now trucks.
Even if volume is down, the economy is healthy and automakers are profitable, she said.
“Sales numbers are down but prices — overall and industrywide — have grown faster than inflation. So prices are holding up.”