GREATER REVENUE AND GROWING VEHICLE OWNERSHIP MEANS GOOD NEWS FOR CANADA’S AUTO INDUSTRY, BUT AS MICHAEL HATCH NOTES, THERE’S STILL A NEED TO TREAD CAREFULLY
It’s been a multi-year and at times slow-growth climb out of the industry’s low-point of 2009. But with a lot of hard work and a little luck, we managed to set a new sales record for new cars and trucks in Canada in 2013. Sales grew by an impressive four per cent nationwide last year to 1.74 million new vehicles, only the second time ever the 1.7 million threshold has been breached.
This is unequivocally great news for an industry many had given up for dead a very short time ago. However, the record that we achieved last year beat one previously set in 2002. So another way of saying that a new sales record was set in 2013 is that new vehicle demand has traveled along a bumpy U-shaped road over the past decade or more. Is it an exaggeration to call this a “lost decade” of car sales in Canada?
The phrase “lost decade” is most often associated with the stagnant Japanese economy of the 1990s. However since we’re now six years removed from the onset of the most recent recession, the term has popped up more frequently referring to other times and places much closer to home. Since 2002 the following things have happened in Canada: our population has grown by 12 per cent; total retail sales have jumped by 46 per cent; total employment is up 20 per cent; government revenues have increased by 51 per cent; and the Toronto Stock Exchange’s main index has almost doubled — jumping more than 80 per cent in the last 11 years.
REVENUE GROWTH
To compare these numbers directly with car sales that are essentially flat over that same period is not entirely fair: retail auto industry revenues, for example, have grown significantly in nominal and real terms over the past decade. Also, the growth in most of those indicators would look less impressive if set against not the arbitrary year of 2002 but their own past peaks. Still, there is something bittersweet about beating a sales record that was set when Jean Chretien was Prime Minister.
However to call the past 10 years a lost decade is an exaggeration. Though new car sales have traveled a bumpy road since 2002, selling new vehicles is not the only thing new car dealers do.
The used car market has grown almost without exception every year since 2002 and new car dealers are making impressive investments in that space — finance, service, and warranties remain fertile ground for dealers chasing revenues. Other lines of business provide positive cash flow too. In fact, total retail revenues in the automotive sector have grown from $69 billion to $85 billion over the past decade.
Though inflation will account for a lot of this, real growth has taken place even though average new car prices are essentially the same as they were the last time that record was set.
MORE DRIVERS TODAY
And not only are there more Canadians than there were in 2002, more of them are driving. Between 1990 and 2000, the ownership rate — the number of vehicles on the road as a ratio of the driving-age population – grew by precisely zero per cent. Since then, it’s jumped more than eight percentage points to almost 80 per cent, only coming down a little bit in the recession years. Though today’s product quality means that consumers differentiate less than they once did between new and nearly-new vehicles, higher ownership rates (to a point) are a positive development: most people, once they own a vehicle, will not soon go back to not owning one. We won’t be getting to the recent American ownership rate of 101 per cent (more cars than people that can drive them) any time soon, but the fact that the ratio has inched up consistently over the past decade after a long period of flat-lining is a positive development for the industry.
Any time a sales record is set it is good news. It’s good news for the individual salesperson, the dealership, dealer group, province or country as a whole. That it took us 11 years to get back to 2002 levels speaks to the immense challenges we’ve faced in the interim, many of which still face the economy at large and the auto industry in particular. So pop the sparkling wine, but perhaps not the Champagne, and toast a new Canadian new vehicle sales record for 2013.
