Canadian household new vehicle sales approaching record level

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Canadian households are buying new and used cars at a “near-record pace” despite a sagging global sales, says a new report by Scotia Economics.

In the Global Auto Report, released today by the bank, it says vehicle purchases could climb to its second highest point on record behind a peak in 2008.

New vehicle purchases by Canadian households have jumped by eight per cent so far this year, and are likely to total 1.38 million units in 2010. The reports says those figures almost fully reverses last year's nine per cent slide, when the global economic downturn prompted many Canadians to either turn to the less-expensive used vehicle market, or continue to drive their aging vehicles for at least another year.

“However, unlike their Canadian counterparts, American households are opting to replace their aging vehicles with less-expensive pre-owned cars and light trucks instead of shiny new models,” says Carlos Gomes, senior economist with Scotia Economics.

Used car and light truck sales in Canada climbed to a record 2.8 million units in 2009, lifting the used-to-new vehicle sales ratio to a high of 1.9-to-1.0 from an average of 1.4-to-1.0 during the past decade.

Gomes says a rebound in Canadian household new vehicle purchases will drive overall 2010 car and light truck sales (both new and used) to a record 4.4 million units - 2.9 million used vehicles and 1.57 million new models - up from a previous peak of 4.3 million in 2007.

Scotia says the tecord vehicle transactions and the outperformance by new models reflect Canada’s “strong job market,” as well as enhanced new vehicle incentives.

“In fact, the Canadian economy has fully recovered all the jobs lost during the recession - a feat that few other advanced nations can boast. The number of actively employed Canadians stood at 17.2 million at the end of August 2010, surpassing the 2008 peak,” the report continues.

“With Canadians in need of replacing many of the record 8.6 million vehicles on Canadian roads that are at least nine years old, overall vehicle sales - new and used - are set to climb to new heights in 2011,” adds Gomes.

“In fact, despite near-record new vehicle purchases by Canadian households, used car prices, as measured by the Scotiabank Used Car Price Index, have advanced by 5.5 per cent so far this year, indicating ongoing strong demand for pre-owned models.”

The report says rising used car prices combined with enhanced incentives on new models and have significantly narrowed the price differential between new and used vehicles.

Yet the value of a typical pre-owned vehicle transaction still remains less than half the cost of a new car or light truck - keeping used vehicles as a preferred option for many households.

This is especially the case in the United States, where the ratio of used-to-new vehicle sales jumped to a record 3.4-to-1.0 in 2009, from an average of 2.5-to-1.0 during the past decade.

The one segment of the auto market that is outperforming in the United States is fleet purchases.

The bank says that with U.S. rental car agencies, corporations and government restocking their fleets, non-retail volumes have jumped by more than 30 per cent so far this year, and are now only 20 per cent below the pace of the past decade.

In contrast, fleet activity in Canada will total less than 200,000 units for the second consecutive year and will remain more than 30 per cent below the decade-average.