Automotive News Canada - February 2018 - v2 - 16

* FEBRUARY 2018

The Canadian government
is expected to produce a
national strategy to reduce
greenhouse-gas emissions
in 2018. Could this affect
the price of fossil-fuel-power
vehicles, thereby promoting
the sale of more electrified
models?
(PHOTOS: BLOOMBERG, ISTOCK)

IT'S OFFICIAL: 2017 WAS A RECORD-BREAKING
year for Canada's automotive industry, but it's in the
history books now. What can be expected for 2018?
Will Canadians take home more than two million
cars again? Will the business continue to grow?
Well, that depends ...
By MARK RICHARDSON

TORONTO CORRESPONDENT

CANADA'S ECONOMY
"It's going to be tough to
top two million [in 2018]," said
Robert Karwel, senior manager of J.D. Power's Power
Information Network in
Toronto.
"We see the headwinds in
retail coming."
In 2017, the Canadian econ-

omy had low interest rates and
a stable exchange rate with
the U.S. dollar. There were
plenty of cash incentives for
buying a new vehicle, and the
North American Free Trade
Agreement (NAFTA) trudged
on unchanged. Karwel said,
however, that only the most
popular models of vehicles
increased their sales while
most others dropped, especially traditional family sedans.
"It's getting increasing-

ly difficult to sell passenger
cars because of the popularity of light trucks," he said. "In
2017 we had record volume,
but only four out of [every] 10
nameplates increased sales.
That means the other six out
of 10 were a boat anchor on the
industry."
More concerning, however,
is that 84- and 96-month loans
are increasing in popularity.
It usually takes more than five
years for buyers to see positive

equity because of initial taxes
and the fast devaluation of
new vehicles. The average loan
rate is now 117 per cent of the
value of the car. Consequently,
car owners with long-term
loans are less financially capable of trading in their vehicles
for new ones in a three or fouryear timeframe.
In the first nine months of
2017, 26 per cent of all vehicles traded in for new vehicles
had money still owed on them
- negative equity - and the
average amount was $6,000.
In that same period, 54 per
cent of people who financed
their new cars had a loan
term of 84 months or longer; that grew from the first
nine months of 2015 when 50
per cent of loans were for 84
months or longer.
Similarly, while the most
popular length of a car lease
is still 48 months, the fastest
growth in leasing terms is now
for 60 months; consumers are
trying to reduce payments by
spreading them over longer
periods. Karwel is concerned
that buyers are being tempted
into paying for more car than
they can really afford. After
all, the average transaction
price for a new vehicle in 2017
was up seven per cent.
"It's a desire-driven purchase, and the desire will
remain, but we're starting to
push the limits of the financial

instruments that are out there.
"The consumer is getting
stretched a little thinner every
year. As we continue to ingest
record volumes of cars we see
those headwinds on the horizon for the retail market. We
think in 2018 it will pull back
a little. Nothing dramatic,
because the other econo-metric things are pretty stable,
including NAFTA, hopefully."

NAFTA AND THE AMERICANS
The biggest wildcard of
them all, however, is that
nobody can predict what will
happen this year with the
renegotiation of NAFTA.
"We're continuously monitoring the NAFTA position," said Jean-Francois
Champagne, president of
the Automotive Industries
Association of Canada.
"I don't think that the U.S.
government has the political focus and will to execute
on their promise to repeal
NAFTA. There's a lot of work
done by the Canadian government to convey that message at the state and congress level. This is my personal opinion, but we're
going to see negotiations
around NAFTA go all the way
through 2018."
David Adams, however,
is not so sure. The president
of the Global Automakers of
Canada thinks the Mexico

The challenge becomes, what does
Canada do in response [to U.S. actions],
because the Prime Minister was elected
on a platform of doing something
on climate change.
JEAN-FRANCOIS CHAMPAGNE
Automotive Industries
Association of Canada

http://www.quorumdms.com/nada2018

Table of Contents for the Digital Edition of Automotive News Canada - February 2018 - v2