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The following is a broad-strokes analysis of the Canadian and U.S. auto markets. Relevant information is set out in four accompanying charts.
Chief Economist, CanaData
The following is a broad-strokes analysis of the Canadian and U.S. auto markets. Relevant information is set out in four accompanying charts.
The graphs comparing the two countries are as consistent as the data allows. The Canadian designation “passenger cars” is roughly equivalent to “autos” in the U.S.
“Light trucks” in the U.S. is similar to “vans, trucks and buses” in Canada. The only road-worthy category omitted is heavy transport trucks.
Graph 1 shows a Canadian passenger car segment that has been in precipitous decline since the Great Recession.
Canadian “van, truck and bus” sales, however, were noticeably rising even before the 2008-2009 economic troubles. After a brief dip that bottomed out in late 2009, they’ve been climbing upward at a 45 degree angle. (The data source is Statistics Canada’s Cansim Table 079-0003.)
There are some characteristics of the Canadian auto market that are worth highlighting.
Is there a specific month when unit sales (not seasonally adjusted) are traditionally at their best?
Absolutely! That month is May. In eight of the past 10 years, sales in May have led all other months. Furthermore, the exceptions were on either side of it. April was the winner in 2005 and June in 2011.
My wife has an anthropomorphic explanation for why May is so buoyant. By the time many older cars make it through the winter, they are on life-support. Spring is a time for renewal. Need it be added that the Carrick family has recently been shopping for new wheels.
The weakest sales month of the year, bar none, is January. This is easy to understand. Sleet and snow slow showroom traffic. Besides, who’s got money to spend on a big ticket durable-goods item after the gift-giving Christmas holiday season?
The average percentage sales change between January and May, since 2004, has been +90%.
“Van, truck and bus” sales in Canada are now about one-third higher than for passenger cars.
In the U.S., light truck sales overtook autos eight years earlier than in Canada. Mid-2001 was the crossover point, but then a funny thing happened in the recession. They quickly retreated to the same level as autos, yielding a 50-50 market share once again.
Furthermore, since late 2009, both auto and light truck sales have been on the rise south of the border to about the same degree.
Analysts have interpreted this to mean U.S. consumers have finally come to appreciate the appeal of less expensive and more fuel-efficient smaller vehicles.
In other words, after the pain of the credit crisis, Americans have become more practical.
This conveniently overlooks the fact that luxury brands, both domestic and foreign (e.g., German sedans), have been more than holding their own.
The super-low interest rates are an incentive for car sales. This begs the question, “Are lenders assuming inordinate risk, similar to what happened nearly a decade ago with sub-prime mortgages in residential real estate?”
There is a counter-argument to this concern. Studies have found that borrowers will maintain car loan payments ahead of all other debt obligations, since they are likely to need transportation to their work places, where their pay checks are signed.
Part 2 of this article will continue the analysis and draw the conclusion, that while there may possibly be financial reasons to consider shifting future auto sector investments out of Canada, there will be no justification based on the level of domestic consumer support.
To be continued in Economy at a Glance Part 2.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.
Graph 1: Motor vehicle sales in Canada
(12-month moving totals) Graph 2: Motor vehicle sales in the U.S.
(12-month moving totals)
Data source: Statistics Canada. Charts: Reed Construction Data – CanaData.
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