It’s situation normal for Canadian auto dealers
It’s not that long ago that it seemed like the biggest uncertainty Canadian dealers had to face was how much their vehicle sales would be up over the year before. But that all changed in the fall of 2008 when sales went into freefall as economic crisis engulfed the globe.
They’ve recovered substantially since that time. But not consistently. A graph of monthly sales over the period from then until now looks like the trajectory of a yo-yo. Seldom since then have sales been up for two months in a row, and on several occasions they’ve been down for two or three months running.
Part of the challenge in reporting those fluctuations is the traditional practice of comparing monthly sales to those for the same month the year before. A fair month this year compared to a bad month last year can look like a huge success, while a good month this year compared to a great month last year can look like a disaster in the making. Neither are valid interpretations. And there has been little regularity in which months are up and which are down.
SAAR a more meaningful measure
That’s why the SAAR (Seasonally Adjusted Annual Rate) has become a more meaningful measure of monthly sales performance. It’s a measure of the total annual sales one could expect if that month’s sales rate prevailed for the whole year and, as its name suggests, it is seasonally adjusted. For example, sales are typically lowest in January and highest in May, so a lower sales figure in January could equate to the same SAAR as a higher figure in May.
Calculating the SAAR is not an exact science. Each analyst has his or her own methods for doing so. Nevertheless, the monthly SAAR figures from DesRosiers Automotive Consultants and Scotiabank, which we report and use in our sales analyses, are typically within a few per cent of each other.
While the SAAR figures may be more meaningful than year-over-year percentage changes, they don’t disguise the real volatility of the market. Looking at the accompanying graph, which shows DesRosiers’ monthly SAAR calculations for the past five years, yields something of a surprise in that respect.
As volatile as the market now seems, it’s not that far off the range of fluctuation experienced before the period of the Great Recession.
Specifically the maximum variation in monthly SAARs for each of the past five years, expressed in millions, were:
2006 – .20
2007 – .24
2008 – .40
2009 – .36
2010 – .27
So far in 2011, through July, that maximum variation has been .22 million. So, erratic as the market may seem, it’s really a case of situation normal. It’s the same level of volatility we’ve learned to live with for years, and considerably more stable than in 2008 and 2009.
The reasons for the current volatility are many, chief among them monthly variations in incentive policy and supply issues as a result of the Japanese earthquakes and tsunami.
While the Japanese situation is rapidly improving, there is no sign of an impending moratorium on incentive competition so it’s unlikely that there will be much improvement in the current level of monthly variance.
Overall sales level down
There is one big difference from the years preceding the Great Recession, however. While the current range of variation is similar, it is occurring lower on the graph. That is, sales are lower.
That statement of the obvious is significant in that the monthly numbers, when averaged out, are very consistent. A plot of the six-month trailing-average SAAR, which smooths out the monthly variations, is almost flat over the past year, holding very tightly within the 1.56-1.60-million range.
That consistency suggests that we may have settled in to a new norm with annual sales in that range. Year-to-date sales through July support that conclusion. They’re within 1.0 percent of the five-year average for the same period, so we’re not far off the long-term trend.
Unfortunately, as we go to press, there are more storm clouds forming on the global economic horizon that could upset that situation. Dennis DesRosiers, president of DesRosiers Automotive Consultants, conjectures that refilling the Japanese supply lines will offset some of those negative economic indicators and he is holding to his forecast of sales around 1.57 million for the year – an increase of 0.7 percent over 2010.
He cautions, however, that, “if the OEMs can’t find money to throw at the market then we could see a very soft last half of the year.”
