CANADA: SALES RISE THROUGH THE SUMMER AS HEADWINDS PERSIST
Canadian auto sales fell 1.7% month-over-month to 1.73 mn units at a seasonally adjusted annualized rate (SAAR) in August according to Wards Automotive (chart 1).
Vehicle sales in July were 1.76 mn (SAAR) units, up 3.7% m/m from the recent seasonally-adjusted low in June when sales were likely negatively impacted by the CDK software disruptions.
Total non-seasonally adjusted sales for Q2 were previously revised upwards by 6.6%, resulting in the highest unadjusted volume for a single quarter since Q3-2019. In August, year-over-year sales growth was 1% (NSA), remaining positive for a 20th consecutive month. While annual growth in auto sales is still positive, it has slowed considerably from the more than 10% y/y through the six months ending April 2024 as economic headwinds persist.
The recent pace of job gains in Canada has slowed through the summer, averaging 6k (SA) per month for the three months through August, and the unemployment rate rose to 6.6% as the labour force continues to grow faster than jobs added. This softening in the labour market is having the biggest impact on the youth’s category (aged 15–24) and recent immigrants.
Meanwhile, growth in the average hourly wage rate for permanent employees (5.5% m/m SAAR, 3mma) continues to outpace inflation. These real (inflation-adjusted) wage gains and rising personal savings should support domestic consumer spending.
Additionally, the Bank of Canada is continuing to ease monetary policy, having cut the overnight rate by 25 basis points at each of the past three scheduled meetings, lowering the overnight rate to 4.25% at the September 4th meeting. We are expecting a further 50 basis points of cuts this year, with further easing into 2025.
Our outlook for Canadian auto sales is 1.78 mn in 2024, and increasing to 1.8 mn in 2025 as interest rate headwinds unwind.
UNITED STATES: INVENTORIES CONTINUE BUILDING UP AS SALES TREND SIDEWAYS
US auto sales fell 4.5% m/m to 15.1 mn (SAAR) units in August, slowing to the lowest rate since January 2024 (chart 2).
Seasonally adjusted vehicle sales for July were 15.8 mn, up 4.4% m/m from the previous low in June which was when automotive dealers were impacted by the CDK software disruptions. Over the past year light vehicle sales have generally trended sideways in the US. The sales rate has averaged 15.5 mn (SAAR) through the first eight months of 2024, in line with annual 2023 sales.
Meanwhile, inventories continue to increase as North American light vehicle production picked up to 16.6 mn (SAAR) units in Q2-2024, the fastest quarterly pace since Q2-2019 according to Wards Automotive.
With annual inflation continuing to slow and the labour market coming into better balance, the Federal Reserve is expected to pivot towards easing the monetary policy stance. We expect 25 basis point cuts to the fed funds rate, currently 5.5%, at each of the three remaining policy rate meetings in 2024 and further easing into 2025.
Our outlook for US auto sales is 15.7 mn in 2024 as elevated interest rates and slowing economic activity pose headwinds to demand, increasing to 16.5 mn in 2025 as these headwinds ease.
GLOBAL AUTO SALES: SALES RATE SLOWS MID-YEAR AMID REGIONAL SOFTNESS
Global auto sales were unchanged in July (0% m/m, SA), as the monthly sales rate slowed towards the end of Q2 and flat into Q3-2024 (chart 3). Seasonally adjusted vehicle sales in Western Europe fell 1.7% m/m (SA) in July, declining in eight of the 15 countries covered. Meanwhile vehicle sales in Eastern Europe increased 3.1% m/m (SA) in July, having risen in four of the past five months. Auto sales in Asia Pacific fell 2.4% m/m (SA) in July, declining for a second consecutive month to the lowest levels since February 2024, as seasonally adjusted sales slowed in both China (-4.6% m/m SA) and India (-1.8%) which was partially offset by increases in Japan (5.6%). Automotive sales in Latin America increased 6.7% m/m (SA) in July, with the seasonally adjusted sales rate up in all six of the countries covered. Our outlook for global auto sales is 2.1% in 2024 and 3.3% in 2025 (chart 4).
ELECTRIC VEHICLE SALES: QUEBEC DRIVES (TEMPORARY?) SURGE IN Q2-2024 ZEV REGISTRATIONS
New motor vehicle registrations for zero emission vehicles (ZEV), which includes both battery electric (BEV) and plug-in hybrids (PHEV), rose to 65.7k in Q2-2024, a quarterly volume high, according to Statistics Canada. BEVs accounted for nearly three-in-four (73.8%, 48.5k) of new ZEVs while PHEVs accounted for one-in-four (26.2%, 17.2k). New ZEV registrations increased 38% compared to the same quarter a year ago versus a 4.6% y/y increase for non-ZEVs over the same period. This pushed the market share for ZEVs as a percent of all new registrations up to 12.9% in Q2, above 10% for a fifth consecutive quarter and bringing the 4-quarter moving average up to 12.4%.
Growth in national ZEV sales was largely driven by Quebec, which accounted for more than half (33.9k) of all Q2 new ZEV registrations (chart 5). Quebec’s battery electric and plug-in hybrid registrations increased more than 70% and 50% year-over-year respectively, accounting for more than a quarter (26.2%) of the province’s new motor registrations in Q2, the highest market share among all of the provinces for which data is available. This rapid growth in ZEV registrations for Quebec could very well be a temporary short-term surge from buyers looking to take advantage of the “Roulez vert Program” for which planned changes were announced in March 2024. Quebec’s provincial budget for fiscal year 2024–2025 included the phasing out of financial assistance for EV purchases that will be decreasing each year from a maximum of $7k in 2024 down to $0 in 2027. In Ontario, the largest market by total volume, ZEVs accounted for 7.5% (14.3k) of new registrations in Q2-24, up from 6.8% in Q1-24 and 7% Q2-23. Meanwhile in BC, ZEV registrations (12.2k) as a share of the overall market fell to 19.8%, below 20% for the first time since Q2-23. Of the remaining provinces for which data is available, ZEV market share increased from Q1-24 to Q2-24 in PEI (8.7%, 0.2k), New Brunswick (7.1%, 0.8k), Manitoba (5%, 0.7k), and Saskatchewan (2.4%, 0.3k).
In August, the Canadian federal government announced the plan to implement a 100% surtax on all Chinese-made EVs, in line with US tariffs on Chinese EVs that will increase to 100% on September 27th, and changes to the Incentives for Zero-Emission Vehicles (iZEV) Program that will limit purchasing and leasing eligibility to ZEVs produced in Canada or countries with which Canada has a free-trade agreement, both effective October 1st, 2024. While these measures are aimed at protecting Canada’s automotive sector, there is still lots of progress that needs to be made in order for Canada to meet its first interim sales target of 20% ZEV sales by 2026 on the path towards the 100% ZEV sales target by 2035.
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