There's no stopping Canadian auto sales
Business Driver: Many factors contributing to record vehicle sales across the country
Is that a bird? Is that a plane? No, that’s the upwards and onwards buzz of Canadian automotive sales, posting yet another record-selling month.
Last month was the best May — typically one of the strongest sales periods of any year — ever across our nation’s dealership lots.
There were 195,000 new cars and trucks sold, representing a 5.7-per-cent growth over May 2013, which was also a record month.
Vehicle sales numbers continue to defy credulity; deflecting and dodging economic and predictive bullets to carry on a winning march that may well meet or exceed the legendary pre-recession auto sales run-up.
But what makes these numbers tick? Coming out of the recession, pent-up demand, employment and improving buyer confidence were the most obvious and cited reasons.
Many people had delayed big-ticket purchases during the economic doldrums of 2009-10, returning to showrooms once things started to look a little cheery in 2011.
Improved business conditions have also helped. It’s important to note the higher growth in truck sales, largely buoyed by small-business needs, compared to passenger cars.
But the Canadian economy isn’t doing that great, with negligible GDP growth in the first quarter of 2014. Average household debt also continues to balloon — some predict it will reach a historic high this year. Indeed, all signs seem to point toward greater consumer caution and softer sales.
But some surface scratching reveals the true — and, in some cases, hidden — reasons behind the metal madness. Here are five key ones:
1. Easy access to credit: One man’s curse is another’s blessing. While pundits mope about growing consumer debt, longer and better financing terms make car purchases that much easier for the average guy.
“Canadians may be over-leveraged but access to credit continues to be so easy these days,” says Andrew Tai, co-founder of Unhaggle.com, a car-shopping and incentive comparison website. “Automakers are offering financing for up to 84 to 96 months, with attractive interest rates.”
2. The incentives game: Want a Porsche? There’s a deep discount for that. No matter the segment, automakers and their dealers are throwing in all efforts to out-incentivize one another.
Although the average incentive dollar figures did not substantially change year over year, automakers applied cash-purchase incentives to 34 per cent more vehicles in May 2014 as compared to the same period last year, according to stats provided by Tai.
“Incentives have played a huge part in smashing records,” he says. “Automakers are trying to outdo each other across every model line. They are getting more tactical and are reacting faster to competition.”
He cites the example of Audi, which recently had a flash sale for some of its models. Incentives, which are typically introduced at the beginning of a month and generally remain the same across the 30-day period, are often being altered in the third or fourth weeks, to outdo competition and lure more customers.
3. Used car shortage: Low sales during the recession years have led to a shortage of used cars in the current market. Supply pressures have also bumped up prices for pre-owned vehicles.
Longer finance terms and a decrease in leasing have also increased the first ownership period, creating another bottleneck for used cars.
All these factors, combined with the sticker price wizardry, are further pushing new-car sales to record levels.
4. Lower car ownership levels than the U.S.: The Canadian market has more room to grow than south of the border. DesRosiers research shows that only 77 per cent of Canadians own a vehicle, compared to 96 per cent in the U.S.
While many claim America has reached “peak car,” Canada has a few more clicks left before it hits any ownership ceiling.
All the cheap credit and discounts will work toward bringing the remaining 23 per cent closer to a car purchase, thereby keeping the current sales momentum for the next few years.
5. Demographic and income shifts: Between 2004 and 2011, the number of female drivers grew by 2 per cent, compared to a 1-per-cent growth in men behind the wheel.
Dual-income households have been on the rise as well. In 1976, only 47 per cent of families had both husband and wife breadwinners. That number increased to 64 per cent by 2008 (the most recent data available). Dual-income households have a greater need for two cars.
While no direct correlation between the two has been statistically established, surely growth in additional earners has had some impact, however minimal, on vehicle demand. So, how long before Canadian super sales hit kryptonite? If the economy holds up, there’s no dip in sight, although most — myself included — see the growth plateauing or, at least softening, by 2016.
Until then, it’s up, up and away!
Kumar Saha is a Toronto-based automotive analyst with the global research firm Frost & Sullivan.