Interest continue to fall, improving the outlook for Canadian car buyers and dealers, although the jury is out on whether vehicle sales will remain on track in 2024.
The Bank of Canada on Sept. 4 cut its overnight lending rate for the third consecutive month, trimming it by a quarter point to 4.25 per cent. And that puts more money into the pockets of consumers, said Grant Simons, vice-president and head of RBC Automotive Finance.
“For every quarter point the Bank of Canada drops rates, that frees up somewhere between $7 and $8 billion in purchasing power for Canadian households, and much of that will be applied to automotive and other discretionary spending,” he said. “Lower rates do have an impact on the consumer and their ability to and their willingness, frankly, to buy.”
Simons said “there is no doubt” that dealers, too, will benefit from the rate cut. They need to pay for inventory, upgrades, floor plans and more.
“A combination of interest rate and inventory levels do have a significant impact on dealer financial performance,” he said.
'RELIEF' FOR DEALERS
Micheal MacGillivray, CEO of Century Auto Group in Nova Scotia, said “rate reductions immediately provide relief” to dealers.
“Areas of positive impact for dealers definitely include the ‘floor-plan’ and interest charges on financing the new- and used-cars in inventory,” he said. “The rate cut may allow for a respective increase in goodwill in the buy-sell market of dealerships.
“Overall, we know that rate cuts are meant to spur growth and investment in the economy, and dealerships being a large part of the economy, enjoy the same benefits and therefore, dealers welcome the rate reduction.”
The next scheduled date for a potential rate drop is Oct. 23. The Bank of Canada rate had been five per cent since last summer and fell a quarter point in June and a quarter point in July.
More available money comes at just the right time as concern grows that year-end sales won’t be as strong as in 2023.
August sales were up 5.6 per cent compared with the same time last year, said DesRosiers Automotive Consultants (DAC).
It estimates 165,000 vehicles were sold in August, calling it healthy year-over-year growth. DAC added, however, that the numbers were still below pre-pandemic levels when August sales regularly topped 180,000 vehicles.
Andrew King, managing partner at DesRosiers, said the market’s ability
to keep producing significant percentage gains will be more difficult heading into the end of the year as the final four months of 2023 were strong, creating tough benchmarks to beat.
The seasonally adjusted annual rate of sales for August came in at a robust 1.81 million vehicles. That’s the highest it has been since the first quarter of 2024 when pent-up vehicle demand was driving sales. The SAAR topped two million during the first quarter.
DesRosiers said sales were up 10.5 per cent for the first seven months of the year as vehicle supply increased.
MAZDA LEADS REPORTING BRANDS
Of the 10 brands that continue to report sales on a monthly basis, Mazda saw the biggest gain: 57 per cent to 8,443 vehicles from 5,384. The star performer was the CX-5 with sales of 3,727 versus 1,895 last August, an increase of 97 per cent.
Subaru was the second-biggest gainer, up 34 per cent to 5,868 vehicles.
Low-volume luxury brand Genesis was up 17.6 per cent to 660 vehicles. Hyundai sales were up 3.2 per cent to 10,697 and Honda edged up only slightly by 0.2 per cent to 11,694 vehicles.
Kia had the biggest drop among brands that reported August figures, down 11.4 per cent to 7,412 vehicles. Acura fell 7.5 per cent to 995 vehicles and Lexus was off 6.9 per cent to 2,420.
Of those brands reporting, Toyota was the biggest seller by volume at 16,683 vehicles, but sales were down 2.5 per cent.
