BIV had an opportunity to speak with Michael Hatch, chief economist for the Canadian Automobile Dealers Association (CADA), who was in town last week for the annual BC Auto Summit. Hatch spoke on a panel that included B.C. Finance Minister Colin Hansen about car dealers, the state of the economy and CADA’s support of the HST.
We did have a challenging past couple of years. This year, things have really come back across Canada in terms of the retail market. We represent dealers all across the country and all brands that are availwable in Canada. The market has come back to a great extent here in Canada versus what has gone in the U.S. where they are still really struggling in general, particularly with regard to car sales.
Car sales are tightly correlated to the economy at large and employment in particular. Our job market, although we lost a lot of jobs throughout the recession, recovered most of those. Our job market has proven much more resilient than the American one. That’s the big reason why the market has come back to the extent that it has. We are not all the way back to where we were before the recession, nor do we expect that to happen any time soon. Things are certainly a lot better than they were a year ago.
Traditionally in Canada, we have leaned heavily on the market for smaller, more fuel-efficient cars, as much as 50% to 60% of our market has historically been in that segment. More recently, we have sold a few more trucks than cars. The reason for that has really been incentives the manufacturers have been offering. The levels of incentives over the past six to 12 months have been really high. The effect of that is that it is pushing people to higher segments. They are going for bigger vehicles because usually when the incentives are 10% to 20% of the price, people save more money the higher up the chain they go.
In the past few months, they have really aggressively been pushing incentives. That has been one factor. Independently of that we have noticed that prices have been going down for a number of years. The average new vehicle price in Canada has been on the way down for a number of years and that also drives demand. Incentives are part of that.
Now every individual manufacturer is going to have to decide at what level they can continue to offer those incentives. But the manufacturers, for the most part, remain profitable. Incentives will probably come down in the next few months. If not, they’ll stay flat. They are not going to get any larger. Incentives probably can’t stay at the levels that we’ve seen in the past few months indefinitely. That’s a decision that every manufacturer is going to have to make. Despite the big incentives, they are still making money.
The economy at large is probably going to grow 2% to 2.5% in Canada this year, which is a little bit less than what we’ve been used to. We are still pretty heavily tied to what goes on in the U.S. and they have a lot of serious issues to work out. I do not see it as a stop and start situation. I predict a slow yet steady growth of the economy at large and for our market in particular.
The situation here with regards to our members in B.C. has mirrored what has gone on nationally. Nobody has been immune to the effects of the recession here or in any other province. The whole issue of HST is particular to here and in Ontario. We are heavily supportive of the HST and the government’s move to implement it. We understand there are a lot of political issues at play. History tells us it is the right thing to do. It does create jobs.
In my home province of Newfoundland, when they brought it in, it lowered prices because the old PST is buried in the price 100 times over. A true value added tax is only applied at the point of sale. Harmonization brought down prices and it will do the same thing here in B.C. if it is allowed to proceed.