Now that we are 8 months into the year a number of trends and issues are firmly in place. The number one trend is the strength of the large pickup segment.
Traditionally the large pickup market has been one of the most ‘steady Eddie’ elements of the light vehicle market. Back in the 1980s they accounted for about 10 percent of the overall market year in and year out. With the boom in the West pickups grew in importance and for most of the last 20 years they accounted for roughly 13 percent of total vehicle sales in Canada with volumes consistently at about 200k units.
However, over the last three years they have averaged closer to 260K units and this year they are tracking at about 300K units – a full 100K units above long term tracking levels and closer to a 16/17 percent share of the total market. Some of this growth has been cannibalized from small pickup. Ford exiting the small pickup market has provided 20K additional units of potential for large pickup (Ford has done a good job converting these buyers to F-Series). However, the growth in large pickups has outperformed this. The question is why and is this sustainable?
The level of competition and the excellent product introduced into the segment the last few years accounts for some of the increase and this should hold. As we always say “Product, product, product”. However, this also doesn’t account for all the gains. One element we are still tracking is the possibility of the continued growth in personal use pick-up sales. The West has been the stalwart of the Canadian market the past few years and they have the highest incidence of personal use sales in this segment. If you believe this logic then large pick-up truck sales should hold in the near term and continue in the 17 percent of the market range for quite some time.
Other notable trends to point out in this top ten report:
Civic is starting to pull away from Elantra as the best-selling passenger car. We also think this will continue but for a different reason than one might suspect. We suspect the new Corolla is going to motivate Honda’s approach to Civic. As Honda responds to the new Corolla it may actually help them compete with Elantra.
Ford F-Series will easily be the top selling truck this year. Ford broke the 100K unit mark for the first time with the F-Series last year and are tracking 14 percent higher this year. Normally there is some give back when you have a tough comparable but they have brushed this aside. What is surprising is the fact the new Sierra pickup from GM isn’t participating in the sales boon. GM has historically maintained the number one position in the pickup market however they are now fighting it out with Chrysler for second place.
August Sales Report
The strength in Canadian sales is clearly coming from the West and especially Alberta. Although Manitoba is growing faster than Alberta this year (12.1 percent versus 7.9 percent), Alberta is such a large market that it has more influence on the overall national totals. That being said all four Western provinces are selling at a torrid pace.
Longer term, there are questions in any forecast related to the strength in the West. Is this growth sustainable when taking into consideration uncertainty over energy prices? Could the Western demand become fully absorbed and the need for a new vehicle soften? For the immediate future we think the resource based Western provinces will hold nicely, although growth rates are likely to moderate.
One of the key reasons the Canadian market is so healthy the last couple years and is tracking at a record pace this year is the strength in Ontario. Ontario is the largest market and had been quite soft for quite some time. Ontario sales are still underperforming the overall market (up 2.7 percent YTD vs 3.4 percent overall) but are the healthiest they have been since 2002. We still have a long way to go before the Ontario market reaches its full potential.
If one is looking for more upside potential for sales don’t look any further than Quebec. Quebec is the second largest market so it can influence sales to a large degree. Sales peaked in 2007 before the economic downturn at 435K units and a full five years later are still well below that level. This year’s sales in Quebec are down YTD by 0.7 percent which would bring them in at about 410K units, some 25K below previous peak sales.
We are on record that Canada should be able to exceed 1.8 million units in new vehicle sales in Canada this decade. Some question this given how over-bought the West is but Ontario alone has a 100K upside and Quebec another 55K units this decade. If and we admit it is a big IF … but if Central Canada’s economic performance returns then the vehicle markets will improve with them. We are cautiously optimistic.