Canadian auto industry expected to downshift in 2018
NAFTA uncertainty, Millennial unwillingness to keep pace with Baby Boomer car buying habits both factors in the sector's slowdown
OTTAWA—The high-revving Canadian auto industry may be close to topping out.
Faced with declining demand from American car buyers and increasing trade uncertainty, automotive production is expected to advance just 0.8 per cent this year, according to the Conference Board of Canada’s latest outlook.
The slow pace of growth follows strong industry performance over much of the last decade.
“New vehicle sales in the United States are coming off the peak reached in 2016 as pent-up demand from the aftermath of the global recession is satisfied,” Sabrina Bond, an economist at the Conference Board, said in a statement.
“Going forward, demand for new vehicles will continue to ease as a result of the aging of the Baby Boom population in the U.S. and Canada and urban millennials’ purchasing fewer vehicles due to ready access to ride-sharing.”
Potential changes to NAFTA’s rules of origin could also take a “sizable bite” out of Canadian auto exports and manufacturing investment, Bond said. According to the report, the Canadian auto industry’s high share of exports has left the sector vulnerable in ongoing trade negotiations.
Though production is expected to expand slightly, the Conference Board forecasts the sector’s profits will decline. Compared to pre-tax industry earnings of $1.9 billion in 2017, lower revenues will translate to profits of $1.6 billion in 2018 in spite of lower costs, the report forecasts.