At CarGurus, we’re always looking for ways to share more industry insights with our valued dealers. Today, our Director of Automotive Industry Analysis, George Augustaitis, dives into the economic factors that could lead to Canada’s car shoppers buying more used vehicles.
New car sales: Overall outlook
Canada’s economy got off to a sluggish start in 2019, causing consumers to shy away from big ticket purchases, like buying a new car. There were early declines in the new vehicle market and—year to date—new vehicle sales in Canada are down, despite economic bright spots with historical low unemployment and stronger than expected GDP results.
Looking ahead to 2020, I’m forecasting another down year in Canada and that new auto sales will come in at 1.9 million units for the year. Tailwinds—including strong employment, increasing median income, and population growth through immigration—won’t be enough to combat the affordability headwind.
New car sales: Two tailwinds
1. Low unemployment rate
Headed into 2020, the unemployment rate in Canada is at its lowest since the 1970s. As the unemployment rate continues to trend down, it’s a positive sign for the strength of the Canadian economy. With low unemployment and business owners indicating difficulty filling open roles, consumers should feel confident about the economy and making vehicle purchases.
2. Rising median income
Median income has been on the rise in Canada, likely driven by businesses increasing wages to fill open roles. However, wage growth is a slow process and can take time before the workforce supply and demand is once again normalized. This typically gives consumers bigger budgets for discretionary spending, like their monthly car payments.
New car sales: Three headwinds
1. Declining consumer confidence
Despite strong economic tailwinds, consumers are not confident with the current economic situation in Canada, heading in 2020. These challenges make them less likely to make large purchases like a new vehicle. However, if wages continue to increase, the unemployment rate stays low, and consumers are confident in their ability to stay employed and find new work, the trend should reverse and we could see a positive impact on the auto industry.
Affordability continues to be a major headwind in Canada. As more technology and safety features are added to vehicles, average price continues to balloon. While wages have increased, wage growth has not kept pace with new vehicle prices. Some consumers have extended loan terms to combat the rising price of new vehicles, but many have opted to enter the used vehicle market instead.
3. Population growth favors used auto market over new
Canada’s population growth rate is the highest among G7 countries. The reason why? Immigration. New immigrants made up 61% of Canada’s population growth in 2018, which is good news for the new vehicle market, but great news for the used vehicle market. In 2019, nearly 80% of those who immigrated to Canada were over the age of 16. Oftentimes, these are consumers who look for affordable transportation and are more likely to purchase a used vehicle when they first enter the market.