According to the latest global auto report by Scotiabank economists, the Prairie Provinces will continue to drive Canadian auto sales to record highs in 2014. Canadian passenger vehicle sales climbed 4% last year to a record 1.74 million units. Western Canada led the way, but every region posted higher sales in 2013, with six provinces reporting record volumes.
Scotiabank expects purchases to climb to a record of 1.76 million units in 2014, bolstered by a strengthening global economy and continued low interest rates. New vehicle affordability in Canada is at the best level in two decades, partly linked to manufacturer incentives, and consumer confidence is expected to strengthen as the pace of job creation picks up.
Alberta will be the Canadian auto industry’s growth leader in 2014. Vehicle sales in Alberta climbed to a record of 257,000 units last year — 3% above the pre-recession high of 249,000 units. Scotiabank says they expect volumes to advance to 262,000 units in 2014, due to the buoyant labour market, record population inflows and ongoing energy sector investments. Household income in the province is advancing by more than 6% y/y and unemployment is less than 5% — 2.5 percentage less than the national average. Population growth has accelerated to 3.5% — the fastest pace in more than three decades, quadruple the advance in the rest of Canada. The province also has the youngest population in Canada, with a median age of 36 years, four years less than the national average. Light truck manufacturers will continue to benefit most from the strength in Alberta’s auto market, as these models account for more than 75% of overall volumes. Alberta represents 20% of all light truck sales in Canada, but only 8% of car purchases. The gap is even wider in the lucrative pickup truck segment, with Alberta accounting for 30% of overall volumes.
The other Prairie Provinces will also outpace the gains in the rest of Canada. Vehicle purchases in Saskatchewan climbed to a record-high of 58,000 units in 2013 and will approach 60,000 units over the next two years. Meanwhile, sales in Manitoba totaled 54,000 units last year — the highest level since the mid-1980s, and will likely set new highs of 56,000 units by mid-decade. Activity in both provinces has been attributed to record harvests in 2013. However, over the coming year, economic growth in Manitoba will be driven by stronger exports, especially to the United States, and construction of several hydroelectric and non-residential projects. The order backlog is bulging for the province’s transportation and aerospace industries, and exports have started to ramp up in both sectors. In Saskatchewan, a robust labour market and ongoing expansion of several resource projects have boosted population inflows to the fastest pace in more than four decades. Meanwhile, the vehicle-buying population has been advancing by 15,000 per annum since 2008, reversing two decades of stagnation. In fact, highlighting the upside potential for vehicle sales across the Prairies, the region now accounts for half of the growth in Canada’s vehicle-buying population, but only 21% of overall vehicle purchases.
Car and light truck sales in British Columbia reached 180,000 units last year — the fourth-highest level on record — and are expected to edge up to 182,000 in 2014 alongside improving export prospects, especially in forest products and mining, and a boost of confidence from the potential start of construction of at least one LNG project. An engineering contract was recently awarded for Kitimat LNG and a final investment decision is expected later this year. Drilling activity, especially for natural gas, has picked up across the province, with roughly 570 wells drilled last year. This represents a 24% jump from 2012, and a further double-digit jump is projected for the coming year. Meanwhile, forest products, which account for one-quarter of the province’s exports, have considerable upside as the U.S. housing market recovery builds momentum, and the industry gains share in China and Japan. These two countries are currently the destination for 40% of the province’s forest products exports, up from one-quarter as recently as 2008.
Vehicle purchases in Ontario increased to 646,000 units last year — the second-highest level on record. Household purchases led the way, climbing 5% to 555,000 units. However, even with this solid performance, household volumes still remain 5% below the peak of 583,000 set in 2002. Fleet purchases offer more significant opportunities, as stronger U.S. growth and the recent depreciation of the Canadian dollar provide the potential for a better export performance and rising corporate profits. Fleet volumes in Ontario edged up to 90,000 units in 2013, but still remain 11% below the previous peak and are well short of the 97,000 unit average that was normal in the decade prior to the recession.
Most leading indicators of global industrial activity have turned more positive in recent months, pointing to a stronger performance for Ontario’s manufacturing sector. In particular, the auto sector will benefit from strengthening U.S. replacement demand, and will rebound from last year’s setback caused by re-tooling at several assembly plants. Both Ontario’s exports and manufacturing shipments climbed above a year earlier in the final months of 2013 — a significant improvement from a 3% y/y slide in the first half of the year.
Vehicle sales in Quebec underperformed last year, with volumes remaining flat at 415,000 units. Scotiabank expects purchases to inch up to 416,000 units in 2014, as economic growth picks up to just over 1.5% from only 1% last year. Forest products will lead the improvement, which is benefitting from a revival in the U.S. housing market. Non-resource manufacturing has also begun to turn the corner, after significant weakness since early 2012. However, the improvement will be dampened by a recent announcement that a major aerospace manufacturer will be laying off 1,700 workers (1,100 in Canada) as it delays the introduction of its new commercial aircraft until the second half of 2015. Aerospace is the second-largest manufacturing industry in Quebec, behind the primary metals. These two sectors account for one-quarter of overall manufacturing in the province.
Car and light truck sales in Nova Scotia surged 8% to a record 52,000 units last year, as business and consumer confidence continue to improve ahead of the start of federal shipbuilding contract in 2015. Business purchases in Nova Scotia advanced 15% last year, one of the best gains of all the provinces, and a sharp divergence from a double-digit decline in the rest in Atlantic Canada. We expect vehicle sales in Nova Scotia to climb to 53,000 in 2014, as rising exports boost job prospects in manufacturing and the resource sector. Construction of the $1.5 billion Maritime Link is also expected to start this year, supporting job creation.
Passenger vehicle sales in Newfoundland & Labrador climbed to a record 35,000 units last year, and despite slower economic growth in 2014, vehicle purchases will continue to be buoyed by solid income gains. Through September, wages and salaries in the province increased in excess of 6% y/y, triple the advance in the Maritime Provinces.
Click here to read the full Scotiabank Global Auto Report: http://www.scotiabank.com/ca/en/0,,3112,00.html