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Report On Business Canadian auto sales on track for record year, but sedan demand declining

File photo of workers at the General Motors Oshawa assembly plant. Canada is heading for another record year in vehicle sales, but the steep decline in passenger-car demand in North America will cause an extended summer shutdown at General Motors Co. plants in Oshawa, Ont., and St. Catharines, Ont.

Moe Doiron/The Globe and Mail

Canada is heading for another record year in vehicle sales, but the steep decline in passenger-car demand in North America will cause an extended summer shutdown at General Motors Co. plants in Oshawa, Ont., and St. Catharines, Ont.

The Bank of Nova Scotia revised its forecast for Canadian sales upward Thursday, projecting that deliveries will surpass 2 million vehicles for the first time.

Much of that upward revision – from a previous prediction of 1.94 million – is based on an improvement in economic activity in Alberta, despite the recent drop in the price of oil.

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Calgary has moved to the forefront in economic growth among Canadian cities, Bank of Nova Scotia economist Carlos Gomes said in his monthly assessment of the auto sector.

"The rebound in the Calgary economy has lifted auto sales in the city 12 per cent year-over-year through April and account for 40 per cent of all car and light truck sales in Alberta this year," Mr. Gomes wrote.

In a separate report, Bank of Montreal economist Alex Koustas said the auto market is also being propelled partly by jobs growth, notably in British Columbia and Ontario.

Mr. Koustas also believes, however, that the buoyant housing markets in those two provinces have also given a boost to vehicle sales.

"Homeowners in both regions are enjoying strong increases in home equity and net worth and have been eager to deploy it," he wrote.

The hot market segment in both Canada and the United States is crossover utility vehicles, which have displaced mid-sized sedans as the vehicle of choice for many families.

That change in consumer demand means GM dealers in the United States have on their lots almost six months' worth of supply of the Chevrolet Impala and Cadillac XTS cars that are assembled in Oshawa. So GM will cease production of those cars for all of July, adding two weeks to its usual two-week summer vacation shutdown.

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That, in turn, will lead to temporary layoffs at an engine and transmission plant in St. Catharines that ships V6 engines to Oshawa for the Impala and the XTS.

Impala sales fell 6 per cent in the first five months of the year, while XTS shipments dropped 22 per cent. Sales of another mid-sized car, the Chevrolet Malibu, slid 7 per cent, prompting GM to eliminate one shift of production at a plant in Fairfax, Kan.

Inventories in all passenger car segments are running higher than demand, said Haig Stoddard, senior industry analyst for WardsAuto, an industry research group.

"Auto makers started making moves to bring car stocks in line with demand through production cuts and retail incentives well back into 2016, but demand has decelerated too fast for most to keep up with cuts," Mr. Stoddard said. "We expect to see significant downturns in car production through the rest of the year."

However, the sizzling market for crossovers means workers are currently getting plenty of overtime at GM's Cami Automotive plant in Ingersoll, Ont., which assembles the Chevrolet Equinox and GMC Terrain crossovers.

The redesigned Equinox also is more complicated to build than the previous version. That means a planned layoff of about 600 workers scheduled for July that coincides with the shift of Terrain production to Mexico has been delayed until late August, union officials said Thursday.

Laura Dawson with the Canada Institute says Canadian business leaders need to remind Main Street U.S. how important trade with Canada is to their economy
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