Resource-rich Alberta and British Columbia will lead the rebound in car and light truck sales in Canada this year, a new report from Scotiabank predicts.
Higher oil prices are expected to boost the Alberta economy, steering more customers back into showrooms and driving vehicle sales to an annualized 198,000 units, up from 184,000 in 2009.
In addition, the bank’s Global Auto Report predicts that vehicle purchases in British Columbia, where the Winter Olympics and strong energy markets are revving up the economy, will rise to 158,000 this year from 150,000 units in 2009.
The two western-most provinces led the countrywide slump in auto purchases in 2009, with sales in Alberta down 21 per cent and those in B.C. down 15 per cent.
Both provinces have resource-dependent economies and were hit particularly hard when commodity prices slumped during the recession. Now that demand for natural resources is coming back, auto sales will improve along with the economy in Western Canada, Scotiabank said.
Overall, the bank said global car purchases surged 22 per cent year-over-year in December. Meanwhile, North American sales ended 2009 on a strong note, enabling automakers to enter 2010 with renewed confidence.
Senior economist and auto industry expert Carlos Gomes said the bank expects Canadian purchases to climb to 1.53 million units in 2010, up from a decade low of 1.46 million last year, with the western provinces fuelling the rebound into 2011.
“The reason why the resource-rich provinces went down the most the last couple years was because of the global downturn. Our view is that the global economy is now in recovery, so we do think that it will be sustained for the next couple of years,” Gomes said in an interview.
Saskatchewan will also be an important driver of Canadian auto sales going forward, Gomes said. In 2009, 43,766 vehicles were sold in the province, down 8.1 per cent from 2008, according to data compiled by DesRosiers Automotive Consultants.
But even with that decline, Saskatchewan’s auto sales are still 12 per cent above the average of the past decade due to commodity-driven economic growth in the province, Gomes said.
In addition, Saskatchewan currently has the oldest vehicle fleet in Canada, with the average age exceeding 11 years.
In 2009, weak consumer confidence and tight credit markets that made it more difficult to finance vehicle purchases squeezed car sales across North America. Now, economic conditions are improving generally and the U.S. and Canadian economies are recovering from the painful recession.
In breaking down provincial car sales prospects, Scotiabank said:
- Alberta led the downturn in 2009, but is expected to outperform this year as higher oil prices lift car and light truck sales. Oil and gas drilling, the key driver of economic activity in the province, bottomed last summer and now is up nearly 20 per cent year over year in the early weeks of 2010.
- Car purchases in British Columbia will be bolstered by the Winter Olympics and Paralympic Games. Vehicle sales in British Columbia have dropped a cumulative 25 per cent since the 2007 peak of 198,000 units, including a 15 per cent slump in 2009 to 150,000 units, but are expected to increase to 158,000 this year.
- Saskatchewan’s vehicle sales have also started to rebound from an eight per cent decline in 2009, and are expected to total 46,000 units in 2010, up from 44,000 last year. Growth in the Prairie province has outpaced the national average for the last three years.
- Sales in Manitoba are expected to climb to 45,000 units in 2010, from 43,000 last year, as the province benefits from ongoing infrastructure projects, such as the expansion of the Winnipeg airport and construction of the Waskwatim hydro-electric dam.
- Ontario’s car sales are expected to climb to 557,000 units in 2010, up from 535,000 last year. Sales will be bolstered by the end of a four-year cyclical decline in North American vehicle output, as sales bounce back in the key U.S. market.
Ontario, the centre of Canada’s auto assembly sector, is also recovering from a streamlining of its manufacturing, automotive and forestry sectors during the recession.
- Car and light truck sales in Quebec will increase a moderate three per cent in 2010 to 402,000 units, as the province has more new vehicles than other parts of the country.
In addition, while the hard-hit sectors in other provinces have started to rebound, the downturn in the global aerospace sector is still putting downward pressure on the province’s largest manufacturing industry.
The Montreal area is home to big aerospace companies such as aircraft maker Bombardier (TSX:BBD.B), jet engine builder Pratt & Whitney Canada and pilot training technology company CAE Inc. (TSX:CAE).
- In Atlantic Canada, vehicle sales are expected to rise to 119,000 this year from 115,000 in 2009.
The bank said higher base metal prices, which have encouraged mine operators to ramp up production in Newfoundland and Labrador, should help boost sales there.
It also noted that construction projects, including the building and renovation of sports arenas in preparation for the 2011 Canada Winter Games in Halifax, and the thriving finance, insurance and real estate sectors in the Nova Scotia capital were positive factors for the economy that should also help sales.