Why the surge in car sales?

If you have been keeping up with the news, you know automotive sales in Canada rebounded. According to DesRosiers Automotive Consultants, light vehicle sales in Canada came to 185,040, up 5.3 per cent from last May. Year-to-date sales were up 2.4 per cent to 712,059, compared to last year.

Many car makers also reported strong sales, with Ford Motor Company of Canada selling 0.5 per cent more than it did in May. Chrysler, GM Canada and Toyota Canada also experienced stronger sales.

Some commentators suggest this is a sign the economy is turning around, that many who had held onto their older vehicles longer than they might normally have done because of the economic downturn are now in the market for new vehicles because things are starting to improve economically.

I believe all this misses what is really going on. The evidence for a turn-around in the economy is mixed. While companies may be posting higher profits in some sectors, job figures show a stubborn resistance to decline. We are well into a jobless recovery, where companies have simply found ways of operating with smaller staffs and outsourcing major parts of their operations in order to maximize profits.

Household spending is also down. While consumer confidence may be up in some studies, other metrics show Canadians are holding off taking on more household debt, reigning in the use of credit cards and home lines of credit.

What is likely going on is the major car makers are becoming more aggressive in both pricing and financing in regards to new vehicle sales. New vehicle prices have remained steady or dropped somewhat. Many dealers are offering significant discounts to entice buyers, or a range free vehicle upgrade packages.

Of more significance is the new leasing and financing options. Where financing or leasing options had a limited time frame, anywhere between three to five years maximum, I’ve seen financing options now extending the payments over seven or more years. Such an option puts a vehicle in the range of more people who now find the payments more affordable.

What does this mean for our industry? It is to be expected that after a prolonged downturn there will be pent-up demand for new vehicles. It is too early to say, however, if the sales increases are a true upward trend or something that will end at the next sign of economic uncertainty.

Most other studies looking at vehicle ownership have shown people are holding onto vehicles longer and first-time vehicle buyers are open to owning a pre-owned vehicle rather than buying a new one, so the signs are still good for the aftermarket, as I doubt new car sales will return to the levels seen before this economic downturn.