Canadians Truck into a New Decade, According to Scotia Economics

• Incentive-driven Light Trucks Speed Past Car Sales

TORONTO, Nov. 26 /CNW/ - The improvement in global car sales moderated in October, undercut by the expiry of government incentives in Japan, according to the latest Global Auto Report released today by Scotia Economics.  However, excluding Japan and the ongoing weakness in Western Europe, purchases continued to post strong double-digit year-over-year increases.

"The Canadian auto market has been stronger than expected in 2010, buoyed by a robust job market, enhanced incentives - especially for pickup trucks and minivans - and a return of fleet buyers after a four-year hiatus," said Carlos Gomes, Senior Economist, Scotia Economics. "Light trucks have been the main beneficiaries of the improvement."

The Canadian auto market is being underpinned by a recovery of all the jobs lost during the global economic downturn of 2008 and early 2009. Canada and Germany are the only G7 nations where employment levels have surpassed the 2008 peak, enabling households to boost purchases of big-ticket items, such as a new car or light truck.

The Canadian market is also being buoyed by an apparent drive for market share - especially for light trucks - which prompted a summer escalation in incentives. 

"Incentives have roughly doubled over the past year, climbing to nearly 30 per cent of MSRP for pickup trucks, and a weighted average of about 15 per cent of MSRP for all new vehicles," commented Mr. Gomes. "This represents a sharp reversal from developments in other major auto markets, where incentives have been trending lower in 2010, as automakers attempt to gain pricing power."

Pickup trucks and minivans have been the main recipients of incentive funding this year, leading to a 38 per cent surge in minivan sales and a 22 per cent increase in pickup truck volumes.

Light trucks captured a record 54 per cent share of the Canadian new vehicle market this year, up from less than 49 per cent in 2009. This year's five percentage point share swing is nearly four times the average annual shift in the Canadian market, and is roughly double the swing that occurred in 2008 and 2009 alongside the dramatic surge and eventual collapse in energy prices.

"While Canada's enhanced incentives have been successful at attracting households to dealerships, it has also led to the return of fleet buyers in recent months," said Mr. Gomes. "We estimate that stronger economic activity, especially in the construction sector, combined with the introduction of 'employee pricing' in June, has boosted fleet purchases by 14 per cent year-over-year compared with only a four per cent improvement in sales to households."

For retail buyers, discounting has been most effective in enhancing the appeal of minivans. Household minivan purchases have surged by nearly 50 per cent so far this year, increasing the segment's share of the Canadian market for the first time since 1999. 

"The improvement in retail activity is positive for the sales outlook and, indicates that consumers in both Canada and the United States are feeling more confident and are increasingly willing to replace their aging vehicles," concluded Mr. Gomes.

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]; Robyn Harper, Scotiabank Media Communications, [phone], [email protected].