As dealers enter the New Year, there is no need to panic — but do buckle up, for the road will be bumpy at times. Everyone in the auto industry is adjusting to the changes coming not only from the previous year, but also the previous decade.
It’s that time of the year again to reflect on the past 12 months, and gaze through our crystal ball to try and see what the future will hold.
Though, while I am writing this column with the sound of jingle bells in the background, we can take stock of the trends and challenges that have marked the last year — and even consider to what extent they will continue and evolve in 2020.
The past year was a tumultuous period for the automobile industry. As of this writing, the new vehicle market is well on the way to post a decline from 2018. The market has entered a softening period as economic conditions in Canada and globally continue to moderate.
Should we sound the alarm after two years of decline in the new vehicle market? Well no…by recent standards the last two years have been slow.
However, by historical standards these are still strong years and 2019 will probably rank among the top-five selling years on record. The Canadian market is showing resilience despite the economic slowdown, trade challenges, and rising interest rates.
A deeper dive into the data shows that much of the slump in the market in 2019 was driven by the poor performance of the passenger car segment. Truck sales are currently up from 2018, while passenger car sales have dropped by double digits. Moreover, the gap in market share between cars and trucks continued to widen in 2019 with trucks accounting for almost three-quarters of the market.
The ascent of the truck segment over the last few years has been led by consumer preferences for cargo room, capability and safety, but it was mainly due to the improvements in fuel efficiency coupled with a sharp drop in oil prices since 2014, particularly in the SUV segment, representing an impressive 50 per cent of the total market.
We fully expect this trend to continue over the next few years as the passenger car segment continues to retrench to niche market.
The year 2019 has been inclement to the luxury segment, down for the first time over the last two decades after reaching a record high in 2018. The combination of a strong economy with robust job growth, affordable financing and increasing demand in the market has led the luxury segment to outpace sales growth in the overall auto sector in recent years.
However, recent interest rate hikes and the cooling of the housing market in major urban centres, coupled with government policy, have affected sales in the luxury vehicle market. The recent proposal by the federal government to impose a 10 per cent luxury tax on cars over $100,000 will further exacerbate this downward trend, creating the perfect storm.
Luxury taxes are punitive, arbitrary and highly inefficient. They tend to create a distortion of purchase decisions and lead to a decline in sales of the luxury goods targeted, and ultimately to the loss of important revenues and jobs. It is the hope that the federal government will reconsider and stop the luxury tax to protect Canadian small-businesses and jobs.
On a brighter note, consumer demand for Zero-Emission Vehicles (ZEVs) have increased significantly over the past few years. The national rebate program has provided a boost to the sales of ZEVs across Canada. Recent data shows that electric vehicles (EVs) sales have increased by 25 per cent on average in the first three-quarters of 2019. At this pace, year-end sales will reach historic levels.
Automakers are adjusting and restructuring their production to meet the ever-increasing consumer demand for fuel-efficient vehicles and with the proliferation of models — especially in the SUV and pickup truck segment, the rate of adoption will continue to rise across Canada.
That said, there are still some barriers to EV market penetration, including recharging infrastructures and consumer education and awareness, which should be addressed through the collaborative work of governments, manufacturers and retailers.
What does 2020 have in store? This year, the market will continue on the flattening trend, with sales stabilizing around the 1.95 million unit mark. We may see an uptick compared to 2019 if economic conditions improve and if the Bank of Canada moves to cut rates. The upside trend towards zero-emission and technologically-advanced vehicles will likely continue, as well as consumers’ preference for trucks over cars.
The new NAFTA now has a clearer path to ratification since all three countries signed the updated text of the agreement in late 2019. Additionally, we should expect the government to bring forward tougher environmental policies, as well as a wave of left-leaning proposals such as the luxury tax. The auto industry needs to remain alert and engaged to ensure our priorities are considered while the government navigates through the realm of a minority mandate.
So ladies and gentlemen — buckle up as the road gets bumpy.
