Canadian consumers in the market for new vehicles are getting big bargains as sticker prices have dropped to 17-year lows and fuelled healthy sales increases, auto dealers said Friday.
“Though it has made life tough at times for our members and manufacturers, in the end the consumer is the winner,” said Michael Hatch, chief economist of the Canadian Automobile Dealers Association.
Canadian auto sales are expected to reach 1.6 million units in 2011 as prices are the same as in 1994 – a decline of more than 40 per cent when adjusting for inflation.
Intense competition, the higher Canadian dollar , manufacturer incentives and reduced labour and other input costs are responsible for the lower prices.
“Manufacturers have been getting more and more efficient and have been successful at getting their costs down in recent years,” Mr. Hatch said on a conference call.
Savvy consumers, armed with information obtained from the Internet, and keenly focused on price over brand loyalty have forced both domestic and foreign car dealers to compete on price.
The trend predates the recession, but can’t last forever, said Mr. Hatch.
“I don’t see it reversing itself any time soon, but it’s inevitable that it’s going to have to start coming up at some point.”
Despite economic uncertainty, Canada’s new car dealers said sales are growing at a “healthy pace” and driving retail sector activity.
Auto dealers sell more than $70-billion annually in goods and services, representing almost 5 per cent of the country’s GDP, and more than 16 per cent of all retail dollars spent in Canada.
As the most important retail indicator, increasing auto sales is good news for the economy at large, said the association which represents 3,300 dealers employing 140,000 Canadians.
Though not back to pre-recession levels of 1.65 million units, new car sales have rebounded well since the end of the economic recession. They have grown by about 2 per cent so far in 2011, despite a 3.5 per cent drop in July and forecasted declines in August.
There’s many reasons for increasing sales, including pent-up demand from consumers who have held onto older vehicles to ride out the economic downturn.
Unemployment is down almost to pre-recession levels and total kilometres driven is increasing.
But the biggest boost is affordability.
“New vehicles in Canada now are more affordable than they ever have been.”
Mr. Hatch said sales are not far off the levels of 2007 because of the strength of the Canadian market and the impact of low interest rates. The situation is much better than the U.S., where sales are nowhere near pre-recession levels.
JD Power & Associates estimates total light vehicle sales will increase by 9 per cent to 12.6 million units this year and 14.1 million units in 2012.
It says that U.S. sales are not expected to return to pre-recession levels, however, until consumer confidence returns.
Automotive sales are a key component of Canada’s economic activity, which is exposed to flagging consumer confidence as debt problems mount in the United States and Europe. Some economists have speculated that the global economy could be headed back into a recession.
Canada weathered the first recession better than many countries, thanks in part to the relative strength of its banking system and prudent fiscal management, but the economic picture is still mixed.
Overall retail sales fell 0.6 per cent to $37.5-billion in July after three straight monthly increases, marking the first decline since January.
Nevertheless, Statistics Canada reported Friday that the economy grew by 0.3 per cent in July after a 0.2 per cent increase in June. Manufacturing and, to a lesser extent, wholesale trade and transportation services the main sources of growth.