Macroeconomic forces will impact our business environment in 2025
It seems that every time we flip over to a new calendar year, the outlook is similar: an unclear feeling on economic conditions, turbulence in the political landscape and huge expectations on the technology front.
While this seems to be the narrative amongst all sectors, it is especially true in the automotive industry today.
Economic growth in Canada should be moderate in 2025. Interest rates have been dropping steadily throughout the year and this has fueled investment in small businesses throughout the country.
The cost of borrowing funds has been declining, so this should motivate dealers to reinvest in themselves next year. Inflation is stabilizing and the Bank of Canada is doing everything it can to normalize the business environment. This should help promote the startup community next year.
While a strong business environment is always a good thing for the automotive space, a small caveat does exist as we start 2025. The Canadian dollar hasn’t been this weak in years. Our buying power has been diminished and this may halt the recent trend of Canadian dealers expanding into the U.S. Conversely, this could motivate larger U.S. groups to continue their consolidation efforts north of the border.
The biggest unknown, of course, is the geopolitical tensions that are arising between Canada and the U.S. Tariffs could compromise the production and supply chain of vehicles into Canada. Other tensions between U.S.-China and Europe-Russia could also threaten the flow of parts and finished products and ultimately cause issues for dealers and customers alike.
On the positive side, the push toward further technology advancements will continue. All leading government bodies in Canada, U.S. and the rest of the world are committed to this. I fully expect supply chains to become stronger and less vulnerable to disruptions as we move into the future. With Elon Musk playing a major role in the new Trump regime, the business community is fully expecting technology powerhouses to continue their collaborations into the rest of the automotive and supply chain ecosystems.
Climate change will continue to be a leading topic in Canada, although I see that narrative diminishing a bit in the U.S. as Trump pushes his priorities toward oil and fossil fuels.
Electric vehicles will continue to grow at a slow and steady pace, but will fall way short of the requirements needed to meet the 2035 Canadian zero-emissions commitment. Moreover, a likely change at the Prime Minister’s Office next year will shift priorities once again and work to align Canada with the U.S. agenda.
2025 will be interesting indeed. Happy new year.
