BMO Financial Group
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BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

July 24, 2014 08:00 ET

North American Auto Sales On Pace to Hit Highest Level in Seven Years: BMO Economics

- Pent-up demand in U.S.; average vehicle age is more than 11 years old

- Canadian buying preferences starting to mirror U.S; more vehicles per household

- Auto sector expected to remain on upward trajectory for the next few years

TORONTO, ONTARIO and CHICAGO, ILLINOIS--(Marketwired - July 24, 2014) - The North American auto market is on pace to break the 18-million-unit mark for the first time since 2007, according to a new report by BMO Economics.

"As we pass the halfway point this year, it's clear that the upside potential we saw in the auto market is being fully realized, and then some," said Alex Koustas, Economist, BMO Capital Markets. "While a pick-up in American demand was fully expected, a continuation of last year's record-setting selling pace in the Canadian market points to a deeper shift in consumer preferences. The pace of sales in the overall North American market will keep both dealers and manufacturers very happy."

Mr. Koustas noted that overall, conditions in the North American marketplace look to be quite positive heading into the third quarter. "Despite some disappointing headline indicators, American consumers are actually accelerating their purchases of new vehicles, and the recent strength in the U.S. labour market will only help things going forward. Canadians continue to purchase at a record-setting pace, despite restraint in overall consumer spending, indicating a preference for autos in relation to other big ticket items in leaner times."

United States

After a rocky start to the year due to weather-related issues, American sales pumped ahead at a 16.6-million-unit pace in the second quarter, an indication that significant pent-up demand remains in the market." stated Mr. Koustas. "Average vehicle age is approaching a creaky 11.4 years, scrappage rates have remained very low for an unprecedented stretch and vehicle ownership has slipped below long-term averages. This all points to a significant amount of pent-up demand remaining in the market, and it will take a number of years of above-trend sales activity to bridge the gap."

"The pace of U.S. auto sales was very strong in the second quarter, and the momentum looks to continue," said Ghram Debes, Managing Director and Head, Dealer Finance, BMO Harris Bank. "An optimal combination of improved consumer confidence, low interest rates and aging automobiles on the road has created significant demand in the market, and our dealer customers are expressing great confidence in their prospects for continued growth."

Canada

In Canada, sales have exceeded expectations and are on pace to match last year's record high despite the gradual deleveraging being undertaken by Canadian consumers as a whole. "While one cannot totally discount the fact that affordability has improved greatly on the back of lower prices and very enticing financing rates, the steady rise of cars per household points to a deeper underlying trend - one of shifting preferences," noted Mr. Koustas. "The increase in quality and convenience in vehicles is certainly one factor spurring this trend. If Canadian buying preferences continue to converge with those of their American neighbours - in terms of vehicles per household - sales activity can be expected to top the 1.7-million-unit mark for some time, even when factoring a hike in rates next year."

"The Canadian automotive sector continues to benefit from higher quality products and attractive finance rates, leading to a larger number of Canadians interested in purchasing a new vehicle," said Robert Sadokierski, Head, Automotive Finance Group, BMO Financial Group. "In fact, a recent BMO survey found that Canadians intend to purchase a new vehicle every five years, spending an average of $26,044."

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified financial services organization based in North America. The bank offers a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers. BMO Financial Group had total assets of $582 billion and more than 45,500 employees at April 30, 2014.

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