Canadian Household New Vehicle Purchases Approach 2008 Peak, According to
Scotia Economics

TORONTO, Sept. 29 /CNW/ - Global car sales remained below a year earlier in August, but purchases by Canadian households are on a near-record pace, according to the latest Global Auto Report released today by Scotia Economics.

"We expect 2010 retail volumes in Canada to climb to the second-highest annual level on record - only behind the 2008 peak," said Carlos Gomes, Senior Economist, Scotia Economics. "However, unlike their Canadian counterparts, American households are opting to replace their aging vehicles with less-expensive pre-owned cars and light trucks instead of shiny new models."

"New vehicle purchases by Canadian households have jumped by eight per cent so far this year, and are likely to total 1.38 million units in 2010," continued Mr. Gomes. "This almost fully reverses last year's nine per cent slide, when the global economic downturn prompted many Canadians to either turn to the less-expensive used vehicle market, or continue to drive their aging vehicles for at least another year. Used car and light truck sales in Canada climbed to a record 2.8 million units in 2009, lifting the used-to-new vehicle sales ratio to a high of 1.9-to-1.0 from an average of 1.4-to-1.0 during the past decade."

The rebound in Canadian household new vehicle purchases will drive overall 2010 car and light truck sales (both new and used) to a record 4.4 million units - 2.9 million used vehicles and 1.57 million new models - up from a previous peak of 4.3 million in 2007. Record vehicle transactions and the outperformance by new models reflect Canada's strong job market, as well as enhanced new vehicle incentives. In fact, the Canadian economy has fully recovered all the jobs lost during the recession - a feat that few other advanced nations can boast. The number of actively employed Canadians stood at 17.2 million at the end of August 2010, surpassing the 2008 peak.

"With Canadians in need of replacing many of the record 8.6 million vehicles on Canadian roads that are at least 9 years old, overall vehicle sales - new and used - are set to climb to new heights in 2011," added Mr. Gomes. "In fact, despite near-record new vehicle purchases by Canadian households, used car prices, as measured by the Scotiabank Used Car Price Index, have advanced by 5.5 per cent so far this year, indicating ongoing strong demand for pre-owned models.

Rising used car prices combined with enhanced incentives on new models have significantly narrowed the price differential between new and used vehicles. Nevertheless, the value of a typical pre-owned vehicle transaction still remains less than half the cost of a new car or light truck - keeping used vehicles as a preferred option for many households. This is especially the case in the United States, where the ratio of used-to-new vehicle sales jumped to a record 3.4-to-1.0 in 2009, from an average of 2.5-to-1.0 during the past decade.

The one segment of the auto market that is outperforming in the United States is fleet purchases. With U.S. rental car agencies, corporations and government restocking their fleets, non-retail volumes have jumped by more than 30 per cent so far this year, and are now only 20 per cent below the pace of the past decade. In contrast, fleet activity in Canada will total less than 200,000 units for the second consecutive year and will remain more than 30 per cent below the decade-average.

Turning to global car sales, overall volumes were undercut last month by sharp year-over-year declines in the United States and Western Europe. However, outside of these mature markets, sales gains accelerated to a 20 per cent year-over-year increase - the strongest gain since April.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

For further information: Carlos Gomes, Scotia Economics, [phone], [email protected]; Patty Stathokostas, Scotiabank Public Affairs, [phone], [email protected]