May 15, 2021 12:19 AM

Why does Canada’s auto sales continue to drop?

Canadian auto sales are reported to have dropped for the 8th month straight and a long list of reasons why still sound like guesses.

/ Published 2 years ago

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Despite increasing consumer confidence, Canadian auto sales keep falling. In November, Canadian auto sales dropped the eighth month in a row according to a new report. The report also cited higher interest rates as the issue. Interest rates can be added to a growing list of concerns that have been suggested over the last eight months of the industry’s decline. And when one considers all the possible reasons, it looks like no one really knows why sales are dropping.

U.S. carmakers are the hardest hit

The new report from Global Automakers Canada (GAC) announced that total Canadian auto sales dropped 9.4 percent to 143,668 units and November marked the eighth month of Canada’s declining auto sales. While General Motors reported an 18.3 percent decline in sales, Toyota stated a 10.4 percent rise to 18,731 units.

In fact, U.S. carmakers all did poorly in Canada in November. According to the GAC report, each had “double-digit sales losses” with Fiat Chrysler down a staggering 35 percent.

Yet U.S. carmakers remain dominant with Ford taking the top spot in November and leading the pack for the year. GM followed in second place with Toyota close behind in third. Ford’s F-Series pick-up truck is Canada’s best-selling vehicle for the year to date and the Honda Civic leads in the passenger division.

Members of Global Automakers, all of which are headquartered outside of the U.S. and Canada, including Toyota and Audi, had an overall sales drop of 1.5 percent in November. GAC members combined to take 63 percent of the market in November. That is 5 percent more than November 2017. So the GAC is looking relatively strong at the moment.

Higher interest rates lead to longer car loans

Though consumer confidence was up in November, sales were not. In October, the Bank of Canada again raised interest rates for the fifth time in a year and a half. At the moment, more rate hikes are expected.

auto sales
Toyota’s sales were a bright spot in November. (Source)

Longer car loans are one outcome of higher interest rates in Canada. Over half of Canadian car loans are for seven years while only 10 percent of car loans in the U.S. are that long. So rising interest rates and extended car loans are considered a factor in lower sales with the U.S. down only 0.6 percent from November 2017.

Many other factors help explain the drop

But other factors for dropping auto sales have been suggested over the year’s decline. In February, an expected drop in car sales was attributed to a variety of economic factors from a softer real estate market affecting home equity loans used for vehicle purchases to a reduction in personal disposable income as the Canadian dollar grew weaker.

In July, the preceding four months of dropping sales were attributed to a decline in consumer confidence and a slowing down of the economy. Canadian households were said to be scaling back expenditures over the first half of the year.

In response to September’s decline, the seventh straight month of dropping sales, concerns were raised about “uncertainty” related to North American trade negotiations making a contribution. Though other factors, including lower business and consumer confidence and the possibility of further interest rate hikes, were suggested.

In additional bad news for the Canadian auto industry, General Motors recently announced they would shutter their plant in Oshawa leading to the loss of over 2,500 jobs at the plant and over 10,000 more in related businesses. Though that did not factor into November’s sales, one might expect to hear about it when December’s likely sales drop is analyzed.

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