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Cheap loans, rebates propel record new car sales

A 2012 Chrysler 200 sedan is displayed at the Vancouver International Auto Show in Vancouver, British Columbia, Tuesday, April 3, 2012. Rafal Gerszak for The Globe and Mail

Rafal Gerszak/The Globe and Mail

Canadians are defying the warnings about debt and taking advantage of cheap money to buy new cars in record numbers.

A strong comeback by Japan-based auto makers and an abundance of rebates and interest-free loans propelled vehicle sales to nearly 170,000 in June, the highest level ever for that month, eclipsing the previous record of June, 2007.

"Canadian consumers seem to be saying one thing – caution – and doing another – buying," said Douglas Porter, deputy chief economist for Bank of Montreal.

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In fact, the 7-per-cent increase in sales for the first six months of the year represents one of the best half-year periods on record for Canadian auto dealers, Mr. Porter said, "a far cry from the dire warnings about the broader economy one so often hears and in stark contrast to cautious readings on consumer confidence."

The car-buying frenzy underscores the challenges facing policy makers in Ottawa who are trying to persuade Canadians not to borrow so much at a time of low interest rates. As with the housing market, the new car market is being driven by cheap financing. Consumers were enticed onto dealers' lots by a flurry of deals, including interest-free loans of as long as eight years by Hyundai Auto Canada Corp.

Long terms of free money are becoming a key marketing tool, with General Motors of Canada Ltd. now offering seven-year terms without interest.

Toyota Canada Inc. and Honda Canada Inc. led the sales parade with 67-per-cent and 41-per-cent increases, respectively. Japan-based auto makers posted a 24-per-cent gain as a group and grabbed more than five points of market share, mainly at the expense of the Canadian units of the Detroit Three.

The Japan-based companies picked up more than five points of market share to capture 32 per cent of Canadian sales last month.

Those increases are not surprising, given how drastically sales fell for some of them last year after the March earthquake and tsunami led to severe cuts in production at their plants in both Japan and North America.

But some of the biggest Japanese auto makers – notably Honda and Toyota – surpassed pre-earthquake levels last month. Honda's sales of 13,577 exceeded the 11,889 deliveries it made in June, 2010, when the market was recovering from the recession.

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Toyota's June sales hit 19,104 last month, higher than its June, 2010 total of 16,036.

New vehicles such as the Prius C and Prius V and the redesigned Toyota Camry stoked Toyota's gains, while the redesigned Honda Civic still leads passenger car sales.

Ford Motor Co. of Canada Ltd. led all auto makers last month and stands atop the yearly rankings, despite a drop of 9 per cent from a 23-year high in June sales recorded a year earlier.

Dianne Craig, Ford's president, pointed to the subcompact Fiesta, as well as the Edge and Flex crossover vehicles, as bright spots during the month.

A 1-per-cent rise in Chrysler Canada Inc. sales was the 31st straight month of year-over-year monthly sales increases. The gain was driven by an 8-per-cent boost in car sales for a company that has relied heavily in recent years on trucks, sport utilities and minivans.

That reliance on bigger vehicles is changing: Chrysler's majority ownership by Fiat SpA is leading to more development of passenger cars, including the Dodge Dart compact, which should begin arriving at dealers' lots in Canada this summer.

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"Chrysler Canada has been the fastest-growing auto maker in the country for the last two years and the second highest seller of vehicles in Canada this year while for all intents and purposes competing in only 75 per cent of the market," Chrysler Canada president Reid Bigland said in an email message Wednesday. "The 2013 Dodge Dart will put us back in the entire game."

Among the major auto makers, GM Canada posted the biggest decline with an 18-per-cent drop.

Some companies racked up record sales for June, including Hyundai, Mercedes-Benz Canada Inc., and Porsche Cars Canada.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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