How can the auto industry find a silver lining in a dark cloud?
Auto sales in Canada reached an estimated 1.86 million vehicles in 2024 according to Desrosiers Automotive Consultants (DAC) based on data collected from the members of the Canadian Vehicle Manufacturers Association and the Global Automakers of Canada. The fact that Tesla does not contribute to those numbers is making multiyear comparisons increasingly difficult but let’s ignore that complication for now.
DAC’s year end analysis makes the point that the 2024 annual sales total was roughly 180,000 units below the market’s 2017 all-time high. At the same time, Canada’s population has grown from 36.7 million to 41.5 million over that same period. For those of you without a calculator close by, that is a roughly 13% increase in population and a market that is roughly 10% smaller. That is not cause for celebration. At best it merits a: “Well it could have been worse”.
What is striking about the Canadian market is just how much transaction prices have climbed over the past few years. While now moderating as inventories have continued to climb it was fascinating to see the average car price climb from just under $40,000 in 2020 to nearly $60,000 in September of 2023 according to a Globe and Mail article published at the time. SUVs and trucks were said to have climbed by about 25% over that same period.
Part of that change in transaction prices reflected the impact of COVID era supply chain disruption but a great deal of it reflected the fact that many models and/or lower end trims disappeared from the market, driving average prices upward.
In part, this reflects the need for automakers to achieve greater levels of profitability to underwrite the investments required by the shift to connected and electrified cars. It also is a function of government regulations and the constraints they place on the market. I will explore some of those issues in future posts.
But for now, the takeaway should be that vehicle purchases require an ever-increasing percentage of household income and that is bound to impact new car purchases in Canada. If that means vehicles stay on the road longer, how will we mitigate the environmental impact of older technologies? Is there a potential market for refurbished vehicles and an aftermarket opportunity to offer upgrades to existing vehicles? Will Canadians make compromises in the way they spend their household budgets to prioritize transportation and, if so, what sectors of the economy lose? Will the need for affordability bring back smaller, more basic vehicles or will micro mobility establish a new entry point for Canada? Will “usership” in the form of ride hailing or car sharing replace some segment of car ownership?
One thing is for certain, Canadians need to be mobile so industry and government must address the issue of affordable access to transportation.
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