The key factor propelling both the Canadian and U.S. auto markets is solid job growth.The Globe and Mail
Sizzling auto sales in Canada and the United States should continue to stay hot through next year, according to Royal Bank of Canada.
The key factor propelling both markets is solid job growth, because households are more likely to make a major purchase such as a vehicle if they believe their jobs are secure, economist Nathan Janzen said in a report released Tuesday.
Mr. Janzen said U.S. vehicle sales have a little more room to grow than Canadian sales and should hit 16.3 million units this year and 16.8 million units in 2015.
Canadian sales are on pace to top 1.8 million units this year for the first time ever and although they may fall slightly next year, they should stay above the 1.8 million level, he said.
"Interest rates are expected to remain historically low and are expected to rise only gradually going forward," he wrote, "while, in part because of slow price growth, automobile purchases as a share of household incomes are still below prerecession levels," he said in assessing the Canadian outlook.
There is some pent-up demand in Canada, he noted, although Canadian sales are underpinned by job growth and vehicle affordability.
"A trend toward longer amortization periods on vehicles loans, which are now offered over periods up to eight years, have reduced the level of monthly payments associated with a given purchase price or interest rate," he said.
Vehicle sales rose 5.5 per cent through the end of September, putting them ahead of the pace needed to break the record of 1.74 million hit last year.
In fact, if sales through the final months of the year simply match the levels hit last year, the record will be broken.
The U.S. market is still short of record territory, but is now hitting levels not seen since before the 2008-09 recession.
Easing credit conditions, pent-up demand arising from the low level of sales during the recession and improving household net worth are some of the factors driving U.S. sales higher, Mr. Janzen said.
"Gains in equity markets and a return to growth in house prices have supported recent gains in household net worth, while household deleveraging, which likely restrained growth in overall consumer spending, appears to be winding down," he observed.
U.S. sales topped the 16 million mark regularly in the 2000s, hitting a peak of about 17.4 million in 2000.
Meanwhile, revenue for auto makers in the U.S. market is expected to hit a record high of $407-billion (U.S.) this year, industry consulting firm J.D. Power and Associates said.
That's based on the high volume of sales and average transaction prices that have soared above $29,600, compared with $25,700 during the trough of the recession in 2009.