Immigration, pent-up demand fuel growing car sales in Canada (2024)

An influx of new immigrants and demand from consumers who couldn’t get cars during the COVID-19 pandemic are helping automotive sales stay resilient in Canada.

Receipts at car dealers grew one per cent in March from a year ago. The subsector saw the largest increase in retail sales and was up for a second straight month, according to Statistics Canada data released Friday.

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Car sales have also been propping up overall consumer spending over the past several months. In March, Canadian retail sales dropped 0.2 per cent, but excluding sales at auto and parts dealers, receipts fell 0.6 per cent.

During the pandemic, vehicle production slowed and supply chain disruptions resulted in a global chip shortage, which led to a limited supply of cars.

“Supply levels were not able to satisfy demand until around the second half of 2023, and then once that impediment was lifted, then we began to see population growth translate into sales numbers moving into the new year as well,” Andrew Foran, an economist at Toronto-Dominion Bank, said in an interview.

Canada’s population surged by 1.3 million last year. The growth in the consumer base has helped boost retail sales, including in the automotive sector.

However, when sales are controlled for the population growth by looking at a per-capita basis, “you start to see more significant weakness in consumer spending trends and in the broader economy,” said Nathan Janzen, an economist at Royal Bank of Canada.

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This rapid rise in immigration has helped Canada maintain higher automotive sales, while countries that also saw increased demand coming out of the pandemic, like the U.S., are seeing bigger declines in sales.

Although sales in Canada are seeing strength from immigration, automotive dealers are also dealing with headwinds from heightened inflation and interest rates. However, with Bank of Canada interest rate cuts potentially coming as soon as June, some of the factors could start to ease.

In the meantime, the current economic environment has led to an increase in supply of high-end vehicles as demand for more affordable vehicles grows, Foran said.

As pent-up demand diminishes and supply chain problems ease, vehicle sales are starting to normalize. Foran expects that car sales will return to pre-pandemic levels in 2025.

With assistance from Randy Thanthong-Knight and Jay Zhao-Murray.

Bloomberg.com

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