After a definitive downward trend through the first half of 2019, vehicle sales appear to have reached a bottom in Canada, turning modestly higher in the third quarter, according to a report released on Wednesday by TD Economics.
But the bank, in its Canadian Auto Outlook update, said year-to-date sales are still down 3.8 per cent through the first nine months, averaging 1.98 million units (seasonally adjusted annualized rate) and it expects sales to hover in the two million range through 2020.
“From a regional standpoint, sales are down across all provinces, except for Prince Edward Island (+4.4 per cent year to date). Through the first eight months of 2019, the largest decline has been in Manitoba (-17.9 per cent year to date),” said the report.
“Sales declines across Alberta (-5.5 per cent) and Saskatchewan (-2.2 per cent) have been more modest, not surprising given the sharp slowdown in sales across each of these provinces last year as both were still recovering from the 2015-16 oil price shock.
“Across Ontario (-4.1 per cent year to date) and British Columbia (-6.4 per cent), the weakness in auto sales can be partially tied to last year’s slowdown in housing activity following the implementation of the B-20 (mortgage) stress test.”
The report said Canadian production has also slowed through 2019, with year-to-date assemblies down approximately six per cent.
“While some of the pullback can be attributed to the permanent wind down in production at GM’s Oshawa facility, a slower pace of assemblies across other automakers as a result of retooling is also to blame,” it said.
“With the U.S. General Motors strike now in its fourth week, supply chain disruptions are already having an impact on Canadian operations. Production across Oshawa’s Line 1 and 2 has already come to a halt. Ingersoll is still running, though at limited capacity. With inventories starting to dwindle, production will be forced to stop over the coming weeks. The impact to overall Canadian output has, so far, been small. However, should the strike persist for the next few months, we estimate that it could reduce Canadian GDP by as much as 0.3 to 0.4 percentage points. With GM having already announced that it will pull forward the timing of when 2,100 Oshawa workers will be laid off, it is assumed that any production lost at this facility – roughly one-third of quarter four GM production – would not be recouped.”
TD said the Canadian economy finally managed to snap out of a two-quarter slump with a rebound of nearly four per cent (annualized) in the second quarter.
“However, much of the strength was due to one-time factors (i.e. an easing in oil curtailment, surge in aircraft exports), while final domestic demand has contracted in three of the past four quarters. We see little durability to the prior quarter’s performance. Growth for 2019 is forecast at 1.5 per cent, before rising to 1.6 per cent in 2020.”