TORONTO, ONTARIO and CHICAGO, ILLINOIS--(Marketwired - Feb. 20, 2015) - The North American auto sector is on pace for another record-breaking year with sales projected to surpass 18.5 million units in Canada and the U.S., according to new data from BMO Economics.
"The Canadian economy is expected to downshift to a slower growth path this year given the effects of dropping oil prices," said Alex Koustas, Economist, BMO Capital Markets. "However, the economy should still see average growth, enough to lead to a drop in the unemployment rate at the national leve l thanks in part to the lower dollar. Combined with rate cuts by the Bank of Canada, this should provide enough momentum in new vehicle sales to approach last year's performance."
Mr. Koustas noted that the outperformance of light trucks relative to cars is expected to continue this year, with consumers splurging on bolder trims and engine sizes as a result of spending less at the pumps. Truck sales have benefitted significantly in the U.S. as a result of lower gas prices.
Lower Oil Prices and Falling Loonie Set to Spur Canada's Auto Sector
Canadian auto sales are expected to grow again for the sixth year in a row. In 2014, passenger vehicle sales were at 1.85 million unions, up 6 per cent from the previous year (1.74 million). This year, January sales showed promise with a 3.4 per cent increase in sales, putting the industry well on pace to match and even surpass 2014's record breaking year.
"Unlike many, the automotive industry is one that is reaping the benefits of lower oil prices and a falling Canadian dollar," said Robert Sadokierski, Head, Automotive Finance Group, BMO Financial Group. "In some provinces, lower oil prices may lead to high consumer discretionary spending, including automobiles, and a lower Canadian dollar may support automobile manufacturing activities in Canada."
He noted that there have been some significant investments in the Canadian auto industry over the past year, including $560 million in General Motors' assembly plant in Ingersoll, Ontario and $857 million by Honda Canada for three assembly plants in Alliston, Ontario.
Mr. Sadokierski added that interest rates are expected to remain low and will thus continue to support attractive vehicle financing offers. "While the Canadian automotive sector should continue to benefit from appealing finance rates, it remains important for consumers to consider a shorter amortization to avoid the risk associated with longer term loans.&qu ot;
Higher Employment Rates Driving Auto Sales in the United States
South of the border, the U.S. labour market has finally hit top speed, with the last few months of 2014 bringing the total jobs tally to 3.1 million - the best results since the tech boom, Mr. Koustas stated. "Employment rates are one of the best gauges for consumer activity, particularly for autos. When people have jobs, they need to get to work, which could translate into increased auto sales."
"It was another great year in 2014 for the industry, with sales topping 16.5 million, marking the fifth straight year since the 2009 recession," said Ghram Debes, Managing Director and Head, Dealer Finance, BMO Harris Bank. "A combination of a large drop in gas prices, increased availability of auto loans and aging automobiles on the road has continued to increase significant demand in the market
Mr. Debes added that the recovering economy coupled with new high profile investors into the industry - in particular Berkshire Hathaway's purchase of Van Tuyl, the largest private auto group in the U.S., has increased confidence in the automotive industry.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified financial services organization based in North America. The bank offers a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers. BMO Financial Group had total assets of $589 billion and more than 46,000 employees at October 31, 2014.
Jessica Leroux, Toronto
Patrick O'Herlihy, Chicago