Why Canadian luxury vehicle sales show no signs of slowing down

Growth in Canada’s luxury-vehicle segment shows no sign of abating, as consumers continue to flock to them despite higher interest rates and persistent inflation.

Once a “very, very small” portion of Canadian vehicle sales, the luxury market has been “growing consistently” over the past 20 years, said Andrew King, managing partner at DesRosiers Automotive Consultants Inc.

In the first half of 2023, luxury sales accounted for 12.9 per cent of total vehicle sales in Canada, up from 12.5 per cent in 2022 and 11.9 per cent in pre-pandemic 2019.

A range of long- and short-term factors are feeding the gains, King said.

“The 20-year growth has been driven a lot by demographics,” he said. “There’s a huge number of baby boomers in Canada who are now in their peak luxury-buying years, and that’s been a very strong factor.”

King also credits the expansion of the luxury brands’ model lineups as key to the broader appeal of the high-end market.

In an indication of how far luxury sales have come over the past two decades, the Brampton, Ont.-based Policaro Group broke ground July 14 on a new Lexus dealership to replace a nearby store that had outgrown its footprint.

The original Northwest Lexus location opened in 2001 and was scoped to sell about 300 cars per year. It’s now retailing more than 1,000 annually, and the replacement location will be sized accordingly, with three times the floor space planned.

The dealership group’s CEO, Francesco Policaro, said he expects the luxury segment to continue gaining ground, with higher interest rates and inflation doing little to deter buyers so far. He also expects Canada’s high levels of immigration — leading to the arrival of more skilled, well-paid new residents — to translate into higher luxury sales.

‘IT LOOKS VERY STABLE’

Toyota Canada Inc. and its Lexus unit are also forecasting growth across Canada, though not necessarily a sales boom.

“It looks very stable. Population growth is strong, [and] fundamental economics are obviously strong,” said Toyota Canada CEO Larry Hutchinson.

Lexus sold 16,243 vehicles in Canada in the first six months of 2023, a new high for the brand. This compares with 12,115 units sold over the same period last year and 12,321 during the first half of 2019, before the pandemic and resulting supply chain problems crimped vehicle output.

Lexus accounted for 15.1 per cent of Toyota Canada’s total sales through the first half of 2023, compared with 11.6 per cent and 10.2 per cent of total sales in 2022 and 2019, respectively.

While vehicle production has improved over the past six months, demand continues to outpace supply, Hutchinson said. That means Lexus dealerships are still seeing “a lot of pent-up demand.”

As with Policaro, Hutchinson said Lexus has not seen any indication that buyers are leaving the luxury market because of higher interest rates. On July 12, the Bank of Canada raised its benchmark rate to five per cent, its highest level in more than 20 years.

Eventually, King said, the higher interest rates will “bite” the luxury market, but the short-term outlook for the segment is “certainly” positive.

Coupled with the long-term demographic trends fueling luxury sales, King said, the top half of Canadian earners have been putting away large amounts of money since the start of the pandemic and are finding new ways to dispense it.

“There’s a lot of money there,” he said, “and you see them spending it on travel, obviously, and on restaurants and on luxury vehicles.”