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automotive

The U.S. and Canada reported strong auto sales for 2015.Patrick T. Fallon/Bloomberg

Vehicle sales in Canada are on pace for their fourth straight record-setting performance this year, but consumers are likely to tap the brakes next year.

Both Toronto-Dominion Bank and auto forecasting firm LMC Automotive said Thursday that vehicle sales in 2016 are poised to exceed the record of 1.898 million hit last year.

Sales should hit 1.92 million vehicles in Canada, TD Bank said, propelled by robust demand in British Columbia and central Canada, low interest rates and stretched terms for loans, which makes monthly payments more affordable for buyers.

The average term for loans stands at 74 months, TD Bank economist Dina Ignjatovic said in a research report.

"Longer-term loans, combined with low interest rates, are making monthly payments quite reasonable for consumers," Ms. Ignjatovic noted.

Consulting firm J.D. Power and Associates says that since last September, 72 per cent of purchasers have been financing their deals with loans of six years or longer.

The end of the boom time for auto makers is in sight, however.

"Momentum in this notoriously cyclical market is poised to fade over the medium term," Ms. Ignjatovic noted.

Although interest rates are low – including the Bank of Canada rate and financing that auto makers are offering – debt levels among Canadian consumers are at record levels.

"Eventually, consumers will need to slow down the rate at which they are racking up debt – regardless of affordability – which does not bode well for big-ticket items such as autos," she wrote. "The runup in sales seen over the last six years has led to an increase in the ratio of sales per driving-age population, which has now exceeded the long-run average for the last three years."

Sales per 1,000 people aged 15 to 79 surpassed 65 last year compared with 55 during the depths of the 2008-09 recession.

The decline in sales is not expected to be steep, however. She is forecasting sales of 1.87 million vehicles next year.

LMC pointed to the record-setting April level of 200,000 sales. That was the first time sales had hit the 200,000 mark in a single month in Canada. Bank of Nova Scotia economist Carlos Gomes is forecasting sales of 1.96 million vehicles this year.

While companies selling vehicles in Canada bask in record sales, the TD Bank report pointed out that vehicle production in Canada has not returned to prerecession levels and the future for some production "is quite murky."

The outlook for Ontario assembly plants operated by Fiat Chrysler Automobiles NV in Brampton, and General Motors Co. in Oshawa, is cloudy at best, as are the prospects for a Ford Motor Co. engine plant in Windsor, where Unifor, the union that represents hourly workers, is pressing for replacement engine work. Unifor president Jerry Dias has said that the futures of Brampton, Oshawa and the Windsor engine plant will be the key issues in bargaining with the Detroit Three auto makers this summer.

"Canada is undeniably facing some tough competition from some U.S. states and Mexico – particularly when it comes to government incentives," Ms. Ignjatovic wrote.

Plants operated by Japan-based auto makers Honda Motor Co. Ltd. and Toyota Motor Corp. appear safe, at least for the medium term. Honda's plants in Alliston, Ont., are turning out the company's most popular passenger car and crossover vehicle, while Toyota has announced that it will add assembly of the RAV4 crossover to its plant in Cambridge, Ont., to boost production of that vehicle beyond what it now turns out at a plant in Woodstock, Ont.