Our look at what we might see unfold this year
With so much talk of change in the air, Canadian auto dealer wanted to see what a few industry observers were predicting for the year ahead.
Last year was a whirlwind of emotional ups and downs as Canadians awaited the confirmation of a new NAFTA, (eventually signed as the USMCA agreement.) Experts hoped that the signing of the trade deal would help ease anxiety about the auto industry’s future, but that hasn’t happened yet.
Trade uncertainty equals consumer uncertainty, and that in turn influences buying behaviour. It’s not the only thing impacting their purchasing decisions — but it’s one of them, according to Oumar Dicko, Economist, Canadian Automobile Dealers Association (CADA).
“As you know, the Democrats re-took the House and so it may be a little more unclear there on how the agreement will be ratified in the House and in the Senate,” said Dicko in an interview with Canadian auto dealer. “The steel and aluminum tariffs are (also) negatively impacting the auto industry, especially on the manufacturing side. I believe it’s only a matter of time before the added costs are passed on to the consumers on both sides of the border.”
That general decline is expected to carry over into 2019, but that doesn’t mean dealers should anticipate a negative outcome.
He said the Canadian government is working actively to deal with the situation. But until the tariffs are eliminated, the new NAFTA is ratified, and it is clear there are no more so-called Section 232 “National Security” tricks up Donald Trump’s sleeve, Canadians may continue to lack confidence in the market.
On vehicle sales
In terms of auto sales, dealers should feel some relief at the previous year’s record: 2018 closed with the second-best sales figures in history. This, despite the dramatic eight per cent (or 114,289 unit) drop in December sales. Data from DesRosiers Automotive Consultants (DAC) reveals Canada’s final tally was slightly more than 15,000 units shy of the two million milestone, thanks to an overall 2.6 per cent decline.
That general decline is expected to carry over into 2019, but that doesn’t mean dealers should anticipate a negative outcome. On the contrary, Brian Murphy, Vice President of Editorial at Canadian Black Book, said the nation is still in a good place. He foresees a good year for the automobile sector.
“In a big picture sense, we do see the industry and specifically new car sales slowing down,” said Murphy. “We don’t think that new car sales are going to plummet really dramatically, because there’s a lot of good news in the Canadian economy in terms of unemployment rates being at record lows. I think (2019) will be a good year, but new car sales will be down just a little bit.”
On the used car front, sales (in terms of dollars) have continued to increase in the last couple of years. Murphy expects that to continue largely for two reasons: the economy is doing very well — meaning there is more supply of these cars, and that will help drive sales. The Canadian dollar is also in a position where the possibility of exporting used cars to the U.S. market and making a profit still exists.
U.S. political turmoil could bleed into that by way of NAFTA 2.0 ratification — and in so doing affect the Canadian dollar, according to JPMorgan Chase & Co.
“The governing relationship between the Democrats and the Republicans is clearly off to a poor start,” said analysts Daniel Hui and Patrick Locke. “The current dynamic portends major risks surrounding USMCA ratification, which market participants do not yet fully appreciate.”
On trends
There are three trends that dealers need to watch for in 2019, according to Michael Bettencourt, Managing Editor of autoTRADER.ca. After analyzing his company’s data, he foresees the inevitable demise of sedans and minivans — and suggests we say goodbye to the cars from our childhood in exchange for a future dominated by SUVs and subcompact crossovers.
“In 2018, search interest for minivans reached a substantial low, accounting for just 2.58 per cent of search categories specified, and overall listings for new and used vans dropped an average of 11 per cent year-over-year,” said Bettencourt. “New car sedan listings saw an average 15 per cent YOY drop, likely due in part to increased interest in the SUV category.”
Based on autoTRADER.ca’s 2018 Search Trends, the top five models in Canada were the Ford F-150, Ford Mustang, Honda Civic, BMW 3 Series, and Jeep Wrangler. The Ford F-150 pickup truck topped the charts in B.C., Alberta, Saskatchewan, Manitoba, the Maritimes and the Territories.
Bettencourt said one of the main reasons for this is lower fuel prices. As the cost of gasoline decreases, new vehicle sales patterns reveal that consumers are showing a preference (or greater preference) for larger and larger vehicles. The fuel efficiency between cars and trucks, depending on the segment, is very similar.
Then there is the issue of an aging population. As drivers become older, their preference for vehicles with a higher hip-point increases. This means “they can get in and out (of the vehicle) easier,” said Bettencourt. “I think with SUVs and crossovers, it’s basically easier to slide over to a seat that is hip-joint height versus having to crouch down in and out of a sedan, wagon, and other lower-type cars.”
A significant number of Canadians aged 40 and over are buying new vehicles. In fact, data reveals that the vast majority of new car buyers are in that demographic.
Sweet spot: mid-level luxury
Another trend seems to point to mid-level luxury as being Canada’s next sweet spot. While it’s true that most Canadians in 2018 opted for utility vehicles, general interest in luxury car brands continues to remains steady, according to autoTRADER.ca’s Search Trends. This is a key indicator that strong opportunity lies ahead in the mid-level luxury category, and particularly for SUVs within that range.
While there appear to be many EVs on the market, their actual sales volumes are very small. The demand is there, but consumers are willing to wait a long time for the vehicle they want.
“If there are any two trends that are sort of married, it would be those: we are going to see more SUVs from luxury manufacturers, and I think that’s going to reinforce the interest in those new SUV products,” said Bettencourt.
EV revolution…not yet
The last trend involves the electric vehicle or “Tesla” revolution — or rather, the lack thereof. Electric vehicles are gaining traction, but not as quickly as some have predicted.
“The Tesla revolution has dominated headlines, and while EV supply is growing, autoTRADER.ca search data shows Canadians may still need more time to adjust,” saidBettencourt. “Despite growing interest, the category of eco-friendly vehicles only accounts for 1.43 per cent of overall Canadian search volume.”
While there appear to be many EVs on the market, their actual sales volumes are very small. The demand is there, but consumers are willing to wait a long time for the vehicle they want. And many are waiting for things like longer range options, advanced technologies and greater model variant availability.
Overall, Bettencourt said we are still a few years away from seeing EVs dominate car shoppers’ attention.
And he’s not alone: CADA’s Oumar Dicko also appears to be of the same mindset. “There is a trend there but it’s not the revolution of the electric vehicle yet. People still have their preferences (gas-wise) and there needs to be a little more education and awareness about electrical vehicles,” said Dicko. “At the same time, investment in infrastructure for charging these vehicles across the country is needed.”
The government’s “Accelerating the Deployment of Zero Emission Vehicles: Atlantic Canada and the Prairies” report provides further information. As of 2017, the total number of ZEVs (battery-electric, plug-in hybrid, and hydrogen fuel-cell electric vehicles) on Canadian roads was 47,800.
The EV revolution is coming. But as long as Canadians are not aware of the benefit of these cars, or there continues to be a lack of proper infrastructure, Canada will not reach that point just yet.
These are just a few of the trends and predictions for the year ahead as the automotive retail industry in Canada enters an exciting period of change and opportunity.
