Honda Civic sales rose three per cent in the first half of 2023.
“Cars are hot” and trucks are not. That’s the message from one of the country’s foremost automotive analysts.
The rising cost of borrowing is beginning to change consumer behaviour, said Robert Karwel, senior manager of the Canadian automotive practice at J.D. Power.
“Whatever is a passenger car is hot,” he said. “Compact SUVs and subcompact SUVs are also hot right now.
“Wherever fuel economy is high, price is low and finance border is low, is pretty hot.”
In its ongoing fight against inflation, the Bank of Canada on July 12 raised its key overnight lending rate to five per cent. As a result, captive automotive lenders have raised their lending rates to upward of seven per cent, in some cases.
Now “the borrowing burden is enormous to consumers” choosing full-size pickups and SUVs, Karwel said.
His statements are supported by J.D. Power data for the first six months of 2023. No newer data is available.
Days to turn — also called retail velocity, or the number of days a new vehicle sits on a dealership lot before being sold — has skyrocketed in the full-size-pickup segment. Karwel said the data shows it’s “pretty high at 90 to 100 days to turn.”
“It’s not because those trucks are undesirable, it’s just that some of those brands got caught by a rapid rise in interest rates, and they built a very [diverse] mix.”
BIG TRUCKS TUMBLE
Chevrolet Silverados sit in a lot before being loaded onto train cars in Oshawa, Ont.
Still, some full-size pickup and SUV numbers are down, according to the Automotive News Research and Data Center in Detroit. Chevrolet Silverado sales were off five per cent in the first half of 2023, Jeep Gladiator sales fell 33 per cent, and Grand Cherokee sales dropped 12 per cent.
On the flip side, Honda Civic sales rose three per cent, and sales of the Kia Forte compact sedan jumped 27 per cent.
The industry average days to turn is 39, up from 25 days from last year, but down from 56 days two years ago, Karwel said.
“We know there’s more inventory out there,” Karwel said. “So by default, your retail velocity is going to slow a little bit.”
He said 39 days is a good number, but the normal before the COVID-19 pandemic was 70 days. Still, full-size pickups and SUVs are sitting longer today than they were before the COVID-19 pandemic gripped the world in early 2020.
“Clearly [automakers] probably overbuilt most of the body-onframe products we have,” Karwel said. “I’m not going to just pick on pickups, I'm going to lump in full-size utilities and a lot of the midsize pickups that are popular. “When [pickup] payments started to become $1,300 a month on 84-month financing packages, ... clearly [sales] slowed.”
The average transaction price of all new vehicles sold in Canada through the first six months was about $49,500, up about three per cent over the same period last year.
But incentives were also up, at $4,000 compared with $3,000 a year ago.
“This is almost entirely a reaction to what the Bank of Canada has done to control inflation,” Karwel said. “Manufacturers have been absorbing some of that increase. They know what’s going to happen to payments. It’s not so much because of a drop-off in demand.”
The average monthly new-vehicle payment in Canada for the period stands at about $875, up about $100 over last year.
“Most of that is because of an increase in financing,” Karwel said.
JULY SALES 18.8 PER CENT BELOW 2019
Demand for new vehicles continues to be strong, and inventory is slowly building. Most automakers still reporting monthly saw July sales increase compared with the same month in 2022.
DesRosiers Automotive Consultants estimates that automakers sold 140,942 new light vehicles in July, up eight per cent from 130,480 a year ago.
“There is still significant ground to cover in order to return to pre-pandemic levels,” DesRosiers said in a news release. “July new light-vehicle sales in 2019 reached 173,519 units sold, meaning July 2023 remains 18.8 per cent behind.
“However, the market continues to show consistent promise, even outside of the spring selling season.”
Sales have increased in nine consecutive months, DesRosiers said.
Of the brands reporting monthly, only Subaru could justifiably say it is back to normal, with July sales closest to its 2019 numbers. The automaker sold 5,133 vehicles, up 63 per cent over July 2022 and down just half a per cent from 2019, when it sold 5,159.
In the latest AutoForecast Monthly, analyst Sam Fiorani of U.S.-based AutoForecast Solutions wrote that sales are steady. He raised concerns, however, over potential strikes by Unifor in Canada and the UAW in the United States as Detroit Three bargaining began this summer.
“Manufacturers are upping their production plans for the summer to keep inventory levels adequate in the fall, but this may not be enough to keep sales from sagging in [the fourth quarter],” Fiorani said.
“Like in the U.S., Canada could be influenced by a labour strike in the last quarter of 2023. But anticipating that issue, the forecast for sales this year remains at 1.64 million units.”
