Bad news persists, but things could even out in the coming months.
Having passed the halfway mark of 2022, the latest new car sales numbers aren’t going to surprise anyone. With a few exceptions, sales numbers are down, due mostly to parts shortages and supply chain issues.
“It’s not good,” said David Adams, President of the Global Automakers of Canada (GAC). “I think a lot of that has to do with some of the ongoing supply chain challenges, not only around microchips, but other things as well… and just the transportation logistics challenges of getting vehicles into the Canadian market.”
Consumer demand is still high, Adams added, “but there’s just not enough supply to meet the demand.”
Scotiabank Economist, Laura Gu agrees. In her latest Global Economics report, she said that a lack of “inventory remains the binding constraint to stronger auto sales” in Canada.
She explains that “North American auto production has been recovering with strong momentum, but given the sizeable losses accumulated in the past two years, inventory will likely remain tight through 2023.”
Gu explained that although manufacturers in North America have been ramping up production since the beginning of this year, the “current production level is unlikely to support a replenishment of inventory—compared to 2019.”
Adams explained that he doesn’t see the supply issue “being resolved until at least partway through next year.” He added, “It’s not going to be sorted out this year.”
Sales figures, according to Adams, are down month-after-month, and year-over-year. “It’s a little bit discouraging,” he admitted, “but if you’re looking at the silver lining around the cloud, I guess, because the inventory levels are so low, manufacturers don’t need to [incentivize] the vehicles. Dealers aren’t going to have any inventory, so they’re not going to have the cost of carrying inventory. In that context, people are making money on a smaller volume of sales, but I think everybody would like to sell more vehicles.”
According to figures published by GAC, Q2 sales (2022 vs. 2021) are down 23.5%, while YTD sales (2022 vs. 2021) are down 12.9% in Canada. “However,” Adams added, “if you look across the board, there are some brands that have fared better than others, and some segments of the market that have fared better as well.”
Notable exception include Genesis light trucks, which saw a 122.8% improvement in sales (Q2 2022 vs. Q2 2021), and Mitsubishi passenger car, which saw a 173.6% increase in sales in the same period.
Looking ahead at the final six months or 2022, Adams predicts that we’ll finish off the year with 1.65 to 1.7 million is sales, while Gu said that “Canadian auto sales have been trending for most of the year at about 1.65 mn saar units.”
Gu concludes, “in an environment of still-depressed inventory levels, auto sales should continue to recover as production picks up. However, barring any material improvement in affordability, market tightness could dissipate sooner than previously anticipated, putting pressure on purchases once production catches up in 2023.”