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Economy Strong Canadian auto sales fuel case for rate hike

A Kia dealership in Oshawa, Ontario, June 1, 2017/

Fred Lum/The Globe and Mail

Vehicle sales surpassed the 200,000-level in June – the second-straight month above that mark – providing another signal to the Bank of Canada that the Canadian economy is ripe for a rise in interest rates.

Auto makers delivered 203,486 new vehicles in Canada last month, up 6 per cent from 191,088 a year earlier. That made June, 2017, the best June on record and the second-best month yet, surpassed only by the record tally of more than 216,000 in May.

Industry analysts have been revising forecasts upward as vehicle sales in this country head in the opposite direction from those in the United States, where deliveries dropped last month and have declined from the record pace of 2016.

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Canadian sales, in contrast, are on a record pace and could surpass the two-million level on an annual basis for the first time ever.

One factor underpinning higher sales is that the Canadian economy is performing better than expected, said Bank of Nova Scotia economist Carlos Gomes, an auto industry specialist.

"We recently raised our forecast to 2.7-per-cent growth for real GDP this year," Mr. Gomes said, "and that's a significant improvement not only from around 1.5 per [cent] last year, but much better than the 2 per cent we were expecting when we came into the year."

The economies of the Prairie provinces are bouncing back from the energy-sector slowdown, he noted, but he also pointed to solid economic activity in British Columbia and Ontario.

The bank recently raised its forecast for 2017 Canadian vehicle sales to two million from a previous forecast of 1.94 million.

"The other thing is there's a significant fight for market share going on in the Canadian market, so the incentives have been boosted as well," he said.

Deliveries for the first six months of 2017 were above one million – the first time they hit that level in the first six months of any year, DesRosiers Automotive Consultants Inc. said in a note.

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Auto sales are one of several economic indicators that are lining up to suggest the central bank will raise its key rate this month, Mr. Gomes added.

As has generally been the case in the record run in Canada, passenger-car sales fell while deliveries of crossovers, pickup trucks and sport utility vehicles rose, although some auto makers reported the opposite result.

Fiat Chrysler Automobiles Canada, for example, reported a 7-per-cent overall decline with a 30-per-cent drop in sales in its Jeep division and a 24-per-cent slide in sales of its stalwart Dodge Caravan, which is counted on the truck side of the ledger.

But sales of the auto maker's large passenger cars, the Dodge Challenger and Charger and the Chrysler 300, rose.

General Motors of Canada Co. reported a 4-per-cent overall sales gain, but said sales of mid-sized and large Chevrolet and Buick sedans fell 7 per cent.

GM Canada also said sales of its mid-sized crossovers and large SUVs dropped between 14 per cent and 68 per cent, depending on the model.

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Sales of full-sized pickups, however, jumped 19 per cent.

Ford Motor Co. of Canada Ltd. said its 14-per-cent sales increase was driven by a 20-per-cent jump in sales of pickup trucks and utility vehicles.

Some auto makers, including Audi Canada Inc., BMW Canada Inc. and Honda Canada Inc. said sales of both passenger cars and trucks rose from year-earlier levels.

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