Auto sales seen rebounding to pre-recession levels: report

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The Canadian auto industry is rebounding from the recession,  turning 2009's $1.5-billion loss into an expected $1.5-billion profit this year, according to a new report from the Conference Board of Canada.

Consumers who held off buying during the recession are heading back into the market, looking specifically for more fuel-efficient vehicles, according to the research body's June report.

"You can only put off replacing your vehicle for so long," said Michael Burt, the Conference Board's director of industrial economic trends. Even with weaker economic conditions than before the recession, the demand for replacing old vehicles has built up.

And rather than making consumers wary of buying, higher gasoline prices have become an incentive for buyers to upgrade their older, gas-guzzling models. As fuel efficiency standards rise with time, consumer demand for more efficient vehicles is expected to grow even more.

Consumers have less choice in the used market, too. Because people held off buying and leasing cars at the height of the recession, there are fewer relatively new cars available on the used market, pushing consumers to consider new vehicles instead.

The Conference Board expects Canadian vehicle sales to rise by 3.8 per cent to pre-recession levels this year. Truck sales will continue to outpace standard passenger cars, particularly in the Prairies. New vehicle models, low interest rates and dealer incentives add to the push of increased demand.

Even with annual North American sales below what are considered normal levels – it's expected 14 million vehicles will be sold in the U.S. this year, compared with 16 to 17 million a decade ago, and 10 million at the height of the recession – the $1.5-billion profit is a good sign.

"It's positive news that the industry is making money again," Mr. Burt told The Globe and Mail. "It's an industry that struggled to generate a significant profit for much of the last decade."

A weak loonie, combined with moderating materials prices, are helping the auto industry's profitability, though there's a caveat: automakers' intense competition will keep profit margins low.

"Our expectations are that the margins are going to remain quite slim," Mr. Burt said, adding that they will likely ease off in the next few years. "Incentives are still there, and that's always dragged (auto manufacturers) on the margins. You're not selling for as much as you might."

Canadian plants owned by Detroit's Big Three manufacturers are adding extra shifts to accommodate ramped-up production. Honda Motor Co. Ltd., and particularly Toyota Motor Corp., are finally recovering from tsunami-related supply disruptions and massive earlier recalls.

Some of the United States' top-selling vehicles are made in Canada, including the Honda Civic, Toyota Corolla, and Honda CR-V. Big seller Chevrolet Equinox is currently built in Oshawa, but GM announced earlier this month that they would be moving production to a plant in Tennessee.