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Will Canada’s automotive momentum continue in 2013?

  • Power supply for electric car charging. Electric cars charging station. Power supply plugged into an electric car being charged.

Last year was a very good year for car production and sales in Canada. Analysts believe the momentum will continue this year, but for how much longer after that is anyone’s guess.

Drivers are keeping their cars longer, and other countries are competing more aggressively to take over Canadian production.

In fact, 2012 was the second best year on record for car sales, with 1.47 million “light vehicles” being bought across the country. This compares to the best year ever, a decade earlier in 2002, when 1.7 million cars were sold in Canada, but some of those were purchased by Americans taking advantage of our then-cheap loonie. We’re not cheap for Americans any more.

The surge in sales is thanks to a new confidence among consumers who delayed replacing their cars, but those drivers can no longer be counted on to buy a new vehicle every three or four years. While prices haven’t really changed, cash-challenged Canadians are now signing on for much longer financing terms to keep their payments affordable.

Five years ago, 14 per cent of buyers who financed their cars did so over 72 months or longer; now 58 per cent of car loans are locked in to that six-year-plus time period — and almost two out of three Canadian buyers finance their car purchase. Another 18 per cent lease, while 21 per cent pay cash.

“People are making payments over a six-or seven-year time horizon, and the ability to get those people back in to contemplate a new vehicle before that time is not impossible, but it’s definitely tougher,” says Darren Slind, an analyst with J.D. Power and Associates in Toronto.

The average age of a Canadian vehicle being traded in is now 6.3 years old, he says.

“If you think about the heated days of leasing, the one great advantage of it was that every 24 to 36 to 48 months you’d have that customer back in your store and at least you were having a conversation. It’s a more difficult challenge now to bring them back in to show them what’s new.”

And there’s plenty that’s new. Every manufacturer has new models this year and some have four or five in the pipe. Nissan is introducing a new model somewhere in the world every six weeks for the next three years.

In Europe, production and sales have slowed as the continent fights a continuing recession, but the German luxury cars built there are unlikely to flood the market here, says Slind. There are still plenty of other, emerging markets eager for premium cars that will be targeted before Canada, such as the now-wealthy BRIC nations of Brazil, Russia, India and China.

Here in Ontario though, and across North America, auto plants are running at capacity as sales increase, but makers are loath to make the needed investment in time and capital to build new facilities here. They are, however, adding to what they already have.

“The Japanese seem to be investing,” says Josh Bailey, vice-president of research for Canadian Black Book. “Toyota just announced they’re adding more jobs at the RAV4 factory in Cambridge. Honda finished an engine factory in Alliston, which is their third production line in Ontario.

“With the new Impala, GM’s spent money to retool and get everything ready (in Oshawa), though that’s the normal course of business when you introduce a new model. I haven’t seen them put a lot of bricks and mortar into Ontario for a little while.”

The new Chevrolet Impala is due to replace the Camaro in a couple of years, when that iconic car moves its production to Michigan. Auto unions are concerned that cheaper labour and revised state legislation that does not require workers to be unionized had conspired to lure the Camaro away, and there’s no guarantee that Canadian jobs will not be lost.

Bailey, however, says he’s not too concerned now for Oshawa’s future, though he remains cautious about his predictions.

“I think that the volume of Impala will more than make up for the volume of Camaro. These are expectations, of course, and expectations can be wrong, so there is a risk there.

“I think it will be a good year for production in Canada,” he continues. “The makers keep saying that they are building cars in a very high-cost environment in Canada, so if they continue to add more capacity in the U.S. there’s definitely a threat that Canadian jobs could move south, but not this year.”

“South” doesn’t necessarily mean the United States.

“We’re seeing considerable investment by the manufacturers in the Mexican production capacity — the list is endless,” says Slind.

“It wasn’t that long ago that Ontario and Mexico were neck and neck, but that flipped around 2009, 2010, when Mexico came out ahead. I would like to believe that the manufacturers who are here are going to continue to invest in their facilities … but it really comes down to economics in the long run, and the cost of production.

“Certainly the momentum is on the side of Mexico at the moment.”

  • Will Canada’s automotive momentum continue in 2013?

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