Canadian Underwriter

Auto sales see another record in 2014, some worrying economic factors persist

February 2, 2015   by Angela Stelmakowich, Editor

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Record vehicle sales and number of vehicles on the road are fuelling positive feelings in Canada’s collision repair industry, but economic factors signal that a slow down could be on the way, Andrew King, managing partner of DesRosiers Automotive Consultants Inc., suggested in a presentation Friday.

“There are some things happening out there that give us some confidence; some things that make us a little bit nervous, too,” King told attendees of the Canadian Collision Industry Forum (CCIF) in Toronto.

Vehicle sales in Canada have been shooting up since 2009, King said, reporting that the record in 2013 was only surpassed by another in 2014. At 1.85 million units, he said the 2014 total exceeded that in 2013 by more than 100,000 units.

Vehicle sales in Canada in 2014 were 100,000 units higher than in 2013, DesRosiers Automotive Consultants Inc.’s Andrew King told the Canadian Collision Industry Forum.

Numbers cannot continue going up, he suggested, pointing out that there will need to be an automotive correction at some stage. “We don’t think it’s going to happen this year because interest rates are so low. At some point, however, this red line (indicating auto sales) cannot just keep going up forever,” King said.

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“It has to start coming back down. When it does come back down, there will be pain,” he predicted.

At present, though, one factor offering some confidence is that Canada’s population is on the rise. A shrinking population makes it “really hard to grow your automotive market,” King quipped. But the current growth “gives a really solid, firm underpinning to the automotive market in Canada.”

Also positive is growth in the number of cars relative to the number of people in Canada. In the United States, for example, there are 96.8 cars for every 100 people. While Canada has traditionally had lower levels, it is increasing, and has reached 80.2%, “which is really high on this national basis,” King told attendees.

“We debate a lot in the office about how high is Canada going to go,” he said. “Is it going to go up to the U.S. levels, about 96%? Is it going to stay 10 points below the U.S. level? We don’t know the answer, but it’s certainly something that is going to have a big, big impact on the structure of the automotive market going forward,” he pointed out.

Among the negatives that the collision repair sector – along with all industries – is facing is falling oil prices. “There is a big debate taking place in the economic community right now about the impact of oil prices and what it’s going to do,” King told forum attendees.

The “glass half full” view is that as oil prices go down, it frees up a huge amount of consumer spending. It has been reported that for every 10-cent reduction in the price of gas, “it frees up something like about $4.5 billion in consumer spending,” he said.

“We’ve had a 35-cent drop in the price of consumer gas. That’s $15 billion in consumer spending that’s been freed up,” King noted. “Rightly, you’d assume that people would spend some of this money on buying new cars.”

The “glass half empty” view, though, is that energy is so important to Canada – particularly Alberta, Saskatchewan and Newfoundland and Labrador – that lower oil prices will negatively impact the economy. “Energy is now close to 25% of our exports, energy is close to 40% of capital expenditure, the government is becoming increasingly dependant on energy to fill their coffers,” King said.

Some predict that as gas prices fall, “there’s going to be massive unemployment in Alberta, government federally is going to lose $5 billion, the governments of Alberta, Saskatchewan and Newfoundland will lose $8 billion,” he said.

Another negative is household debt, which King characterized as “completely out of control.” Pointing out that Canadians are spending on housing, cars and everything else – but particularly housing and cars – “as interest rates go up, it’s going to cause a problem. When it does, it will cause a housing correction; when it does, it will cause an automotive correction,” he said.

Overall, “I look at the market issues as kind of flat. We think we’re going to be around that 1.85 million, which again is a stupendous record. It’s an incredible number. Longer term, the U.S. is going to grow a little bit, the Canadian market is probably going to flatten off and then, hopefully, decline in an orderly fashion.”