November 29, 2011
Canadian motor vehicle sales have much room for improvement
Chief Economist, CanaData
As with many aspects of the economy, the motor vehicle sector is replete with neutral news.
Statistics Canada’s new motor vehicle sales report recorded slippage of 0.4% in August versus July, based on seasonally adjusted units.
In June, total motor vehicle sales had been at their highest level in three years, dating back to June 2008.
That sounds impressive. But slide the history back a little further.
2008 was the year of wild swings in motor vehicle sales.
In January 2008, total motor vehicle sales recorded an all-time peak of 1.92 million units annualized.
Eleven months later, in December, they fell to their most recent trough level of only 1.34 million units.
That was a drop of 30% or nearly one third.
Stated in absolute terms, sales fell by 580,000 units between the beginning of 2008 and the end.
The industry has been gradually making back that sales decline ever since. But it has still recovered only about half of the peak-to-trough drop.
The contrast between the recovery in van, truck and bus sales – usually combined as one category – versus passenger cars is striking.
The latter remains in a deep trough. May’s level of this year (only 643,000 units annualized) was even lower than during the recession.
The former, however, has come back strongly. It set a new all-time high in June at 973,000 units annualized.
Van, truck and bus sales first passed passenger car sales on a consistent basis in early 2010.
Now, there are 36% more vans, trucks and buses sold than passenger cars. That’s a big change in the market-place in less than two years.
Conventional wisdom holds that when the price of gasoline shoots up, demand for “guzzlers” drops and for “sippers” rises. That used to mean a swing towards smaller passenger cars and away from sports-utility-type vehicles.
However, the price of gas did climb dramatically earlier this year and there was only limited impact on the sales mix. A great deal of engineering effort has gone into making vans and trucks more fuel efficient. Credit the manufacturers, at the prodding of government, for their foresight.
DesRosiers Automotive Consultants Inc. publishes definitive figures on Canadian motor vehicle sales. The reports provide fascinating information on the domestic marketplace. (Keep in mind that sales in Canada are lower than production levels, since a good deal of Canadian output is shipped south of the border.)
With respect to domestic sales, Ford (17.9%) has the largest market share year to date through August. Next in line, also with double-digit percentage shares, are General Motors (15.3%) and Chrysler (14.9%).
Chrysler (+1.7 percentage points) and Ford (+0.5 percentage points) have picked up market share this year, while GM (-0.3 percentage points) has dropped to a minor degree.
Toyota is next in line for market share, at 8.9%, but that’s a drop of 1.4 percentage points versus last year. Supply problems this spring, as a result of earthquake damage in Japan, held back the company’s performance. Honda (with a 6.3% market share) also felt tsunami after-effects, losing 1.3 percentage points of market share.
The problems for the Japanese assemblers have been a boon to the South Koreans. They’ve picked up market share – Hyundai from 7.9% in the first eight months of last year to 8.5% so far this year and Kia from 3.5% to 4.2%.
Ford, GM and Chrysler products combined are accounting for 48% of market demand so far this year versus 46% last year. In other words, what used to be known as the Detroit Big Three are supplying nearly half of Canada’s vehicle market. All the other models – Japanese, South Korean, German, Swedish, Italian and Indian are providing the other 52%.
Yes, that last country designation is correct. Land Rover and Jaguar are owned by Tata motors of India.
A real buzz in the car sector awaits a stronger recovery in the economy. This is important for the construction industry, because new assembly operations and parts plants can generate a great deal of on-site hard-hat work.
Interest in the motor vehicle industry has also traditionally been sparked by technological breakthroughs.
On that score, the Nissan all-electric Leaf and General motors’ electric-hybrid Volt are now being sold in Canada.
Both Ontario and Quebec are offering substantial cash grants – on the order of $8,000 - to purchasers who make the leap.
It will be interesting to monitor sales. The Leaf is truly electric with a range of about 150 kilometres before needing a recharge. The Volt, with its on-board gas engine to recharge the battery on the fly, will go about 600 kilometres before needing a more thorough power top-up.
How well these models will move off the lot seems to rest on the question of whether or not potential customers will have “range anxiety”. Are there sufficient buyers who will feel they are adequately served because their distance requirements are not that extensive?
But there’s also the cachet factor – i.e., wanting to be the first on the block to own one, while also enhancing one’s environmentally-conscious credibility – that should help sales initially.
Most interesting about the media coverage and reviews of the Volt and Leaf is what’s being extolled. It’s not just their “green” aspects. Comfort is also garnering headlines.
This comes in two forms. First is the expanded interior room, given less machinery under the hood. Second, there is a quieter and virtually vibration-free ride without a combustion engine.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
