Auto sales surged to boom levels last month, hitting a record in Canada, and reaching numbers not seen in the U.S. market since the mid-2000s.
Canadians drove 171,560 new vehicles off dealers’ lots in August, marking the best August on record and continuing a pace that should lead to a record performance that will surpass the previous high set last year.
U.S. sales soared to about 17.5 million vehicles on a seasonally adjusted annual rate basis, the highest level since 2006.
Sales in both countries are being driven by low interest rates, loans from auto makers that in some cases are interest free for as long as seven years, improving economic fundamentals and, in the case of the U.S. market, strong pent-up demand.
“If you look at the macroeconomic fundamentals, they are all flashing green at this time,” Emily Kolinski Morris, senior U.S. economist of Ford Motor Co., told analysts and reporters on a conference call Wednesday. “It’s just a very good picture right now.”
Low interest rates appear to be a key factor in both markets, said Paul Ferley, Royal Bank’s assistant chief economist.
“Certainly, I’ve been surprised by the strength of these auto sales numbers, but I’ve been similarly surprised in terms of some of the strength in housing starts,” Mr. Ferley said.
“Low interest rates are making financing costs that much more attractive so that’s inducing households to make these large purchases.”
The state of the industry is dramatically better than it was in 2006, when U.S. sales hit 16.99 million in the last year of the previous boom, which began fading with soaring gas price in 2007 before collapsing in 2008 with the recession and the Chapter 11 bankruptcy filings of Chrysler Group LLC and General Motors Co.
But those prerecession years were dubbed the “era of profitless prosperity” because the Detroit auto makers were racking up billions of dollars in losses while sales rolled along at or close to the 17-million unit level annually.
The recovery from the recession has generated profits because auto makers have eliminated tens of billions of dollars of debt and slashed costs by eliminating tens of thousands of jobs and closing dozens of plants.
So far in the recovery, auto makers have been fairly well-disciplined in trying to keep a tight rein on incentives.
Auto consumer research firm Truecar.com reported that incentives hit an average of $2,772 (U.S.) per vehicle in the United States last month, up from August, 2013, but down slightly from July.
Ford noted that average transaction prices on its F-Series pickup were $2,800 higher than they were a year earlier, a reversal of the traditional scenario, in which a vehicle that is about to be redesigned comes with hefty rebates.
Several auto makers reported record results in Canada, notably Chrysler Canada Inc., whose sales rose 22 per cent to the best August in its history in Canada and putting it on pace for the best annual results in its 89 years in Canada.
Chrysler leads the annual sales rankings. At the other end of the scale, Mitsubishi Motor Sales of Canada Inc. sold more vehicles in August than in any other month in its 15-year history in Canada with a 49-per-cent surge.
Among luxury brands, Audi Canada, BMW Canada Inc. and Land Rover racked up double-digit gains in August. A 66-per-cent increase in sales of Porsche Cars Canada models represented the highest year-over-year increase among all companies.
Ford Motor Co. of Canada Ltd. posted a 3-per-cent increase and led the sales rankings for the fifth straight month, but it’s still trailing Chrysler for the lead in the annual sales race.
Sales of General Motors of Canada Ltd. vehicles rose 5 per cent, as did those of Toyota Canada Inc.
With files from Reuters