Re-opening rebounds in Canadian auto sales continued in July, Scotiabank says

Re-opening rebounds in Canadian auto sales continued in July despite inventory shortages, according to the latest Global Econoimics/Auto News Flash report from Scotiabank, but auto sales activity over the summer and into the fall is expected to slow down.

“DesRosiers Automotive Consultants Inc. estimates 156 k vehicles were sold – a 5.7% decline relative to last year (and by about -10% relative to July 2019),” the report said. “On a seasonally adjusted basis, sales eked out a 3.6% m/m (sa) improvement relative to June at 1.71 million saar, according to the same source.”

As Scotiabank noted, a small burst of pent-up demand was unleashed in June as economies re-opened, pushing up auto sales by +13% month-over-month (sa). “Demand-side factors continue to strengthen: job growth continues to gain steam as July is expected to have added another strong jobs boost to the 231 k gain in June; household savings remained elevated in the mid-teens (at the end of Q1); and consumer confidence started picking up in June with vaccine rates accelerating,” Scotiabank said. “However, these demand drivers will likely only fuel future sales activity as supply shortages persist through the summer at least.”

Even though, as the report noted, North American auto production resumed growth in June (with a +10% m/m, sa improvement according to Wards Automotive), days supply is reportedly still at a record low. “Replenishing inventory on the back of strong demand…will take time despite further forecasted improvements in production (11% m/m for July for an 18% q/q improvement this quarter),” Scotiabank said. “New vehicle price appreciation from the supply-demand imbalance slowed in June, but is still elevated on a year-over-year basis (+4.1%) and should unwind only slowly with few motives for higher incentive spending.”

As a result, Scotiabank forecasts dampened auto sales activity over the summer and into the fall with pent-up demand progressively unwinding as new supply hits the market. “[This] likely takes us well into 2022 before more balanced market conditions return,” Scotiabank said. “We maintain our sales forecast at 1.75 milion units for 2021 and have pencilled in 1.95 million units for 2022 with both subject to considerable uncertainties both on supply and demand factors.” 

In the U.S., meanwhile, auto sales declined for a third consecutive month in July (-5% m/m, sa) as inventory shortages overwhelmed all other drivers. “Strong demand side factors – with a trend economic recovery underway, temporarily goosed by additional stimulus cheques – had pushed sales up to a high of 18.6 million saar units in April before supply constraints started biting,” Scotiabank said. “July sales stood a mere 14.7 million saar units.”  Supply shortages – and the consequent price appreciation that has seen new vehicle inflation accelerate rapidly this spring – will likely curb new vehicle sales in the near term, the report said. “We anticipate 16.4 million sales in 2021 with an acceleration in activity this fall,” Scotiabank said. “For 2022, we forecast 17.4 million new vehicle sales with supply issues widening downside potential and further stimulus representing an upside risk.”