Automakers sold an estimated 121,653 new vehicles in October, according to the forecasting firm DesRosiers Automotive Consultants.
Recession be damned.
Analysts and auto industry insiders don’t appear to be quaking in their boots about new-vehicle sales, despite red-hot inflation, rising interest rates and economists raising the spectre of an economic downturn.
Sales might survive a short recession unscathed because demand has continued to build throughout the COVID-19 pandemic and global microchip shortage.
In early November, Scotiabank Economics said past sales downturns in the auto industry were mostly the result of demand eroded by deteriorating labour markets and softer income. However, the financial institution thinks that Canada’s current labour market “should support continued recovery in auto sales.”
On Nov. 4, Statistics Canada said that the Canadian economy added 108,000 jobs in October and that the unemployment rate held steady at 5.2 per cent.
The Canadian labour market is even tighter than the one in the United States, Scotiabank said.
“Despite recent softness in sales, current labour market conditions should support continued recovery in both Canada and the U.S.,” the institution said.
Automakers sold an estimated 121,653 new vehicles in October, according to the forecasting firm DesRosiers Automotive Consultants (DAC). That’s a 5.3-per-cent drop from the same month a year ago and marks the lowest October total since automakers sold 121,500 new vehicles in 2009, when Canada was in the midst of the Great Recession.
Sales by brand were highly varied, “with a small group of players showing robust sales gains, while the majority continued to struggle and experienced double-digit declines” by percentage, DAC said.
Only a handful of brands still report monthly sales — the vast majority report quarterly — and their results differ greatly.
Total Toyota sales, including those of Lexus, rose 8.2 per cent compared with October 2021, to 16,581 vehicles. In contrast, Honda Canada sales, including Acura, fell 10.4 per cent to 9,884.
Kia sales increased 6.2 per cent to 5,850, while sales at Hyundai plummeted 27.6 per cent to 8,329. At Hyundai’s Genesis luxury brand, sales fell 5.6 per cent to 475.
Mazda sales were off 16.1 per cent to 4,057 vehicles.
OPTIMISM DURING A RECESSION
Palmer: Stellantis CFO doesn’t see any energy shortage depressing his automaker’s supply chain.
“The past two months have shown some improvement from the dire performance levels of the May-August period,” said Andrew King, DAC’s managing partner. “However, until the recovery becomes more broadly based across a wider group of manufacturers, the market will continue to struggle.”
Still, despite forecasting a recession, Scotiabank remains optimistic about auto sales, at least for the rest of 2022 and early 2023.
“We are now expecting technical recessions in both Canada and the U.S. by early next year,” the bank said. “Given that the recessions will likely be mild and short-lived, unemployment rates would remain far below the recessionary-type spikes. Hence, we anticipate strengthening sales alongside inventory improvements over the remainder of this year and next.”
“The economy still has some near-term momentum, which benefits auto demand in the context of heightened uncertainties.”
Meantime, there’s no end in sight to the microchip shortage that has impacted vehicle inventories around the world and gouged sales.
Abroad, a war rages in Ukraine, and there’s concern that a resulting energy crisis in Europe could depress overseas auto output.
However, Stellantis CFO Richard Palmer, on a third-quarter earnings call Nov. 3, said he saw “no red light flashing” on energy that would strain the automaker’s supply chain.
On Oct. 19, Finance Minister and Deputy Prime Minister Chrystia Freeland warned suppliers gathered at the Automotive Parts Manufacturers’ Association (APMA) conference in Windsor, Ont., that “our economy will slow.”
Wark: Told the same APMA group that “our sector is better positioned than it’s ever been,” thanks to backlog of demand for new vehicles and tight inventories.
Shane Wark, an assistant to Unifor National President Lana Payne, attended the APMA conference and remained optimistic about production and sales during a recession.
“I don’t think from an automotive perspective — with all that’s gone on with supply chain issues, the pandemic, the fact that inventory levels continue to be at record lows — I don’t think the impact will be as great on the auto sector.”
Unifor represents hourly workers at the Detroit Three assembly plants in Canada.
“Auto has been held back because of supplier constraints. [Automakers] could have built a lot more vehicles over the last two years, but supplier constraints prevented that. I think there still is a backlog wanting to purchase new vehicles and being unable to. There’s going to be a catch-up.
“From an overall standpoint, I think our sector is better positioned than it has ever been.”
Sam Fiorani of U.S.-based analytics company AutoForecast Solutions (AFS), predicts an uptick in 2023 sales. His outlook for 2022 remains at 1.5 million units, “followed next year by marginal growth of six per cent, taking the market above 1.6 million vehicles.”
“Inventory shortages remain the biggest stumbling block to market growth, and no remedy is on the immediate horizon,” Fiorani said.
RELIEF ON THE WAY?
Still, Scotiabank says 70 per cent to 80 per cent of North American purchases are manufactured in the region, “which has roughly returned to pre-pandemic levels.”
“The easing supply outlook should offer some relief to market tightness and allow for downward pressure on pricing as we enter 2023,” the bank said.
Similar to AFS, Scotiabank predicts automakers selling 1.51 million new vehicles in Canada in 2022 and 1.64 million in 2023. That’s still about 300,000 vehicles shy of the pre-pandemic 2019 total of 1.92 million.
Meanwhile, J.D. Power said the average Canadian transaction price in October fell to $44,000, down by about $400 since September. And it hasn’t been that low since June.
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