Scotiabank on Canada Auto Sales In November 2021

Rebekah Young, Director, Fiscal & Provincial Economics over at Scotiabank noted Thursday that Canadian auto sales "dipped" in November, reflecting what has been a "volatile" recovery for auto sales amidst inventory challenges. She cited a DesRosiers Automotive Consultants Inc. estimate that 110 k vehicles were sold at a seasonally adjusted annualised rate of just 1.45 million units (-13.9% y/y). This works out to a -7.6% m/m (sa) decline, following October's modest gain (1.3% m/m, sa). Young recalled that some monthly variability can be discounted as the shift to quarterly reporting in Canada has introduced wider margins of error.

According to Young. the recovery in North American auto production in November (+9% m/m, sa) offers "measured" hope that output will continue to improve into next year. But, she said, a host of headwinds will likely slow the pace. As Canada competes for limited inventory, she noted, days supply continues to edge lower across Canada, "clearly constraining sales in an otherwise robust demand environment." And job growth may have stalled in November when numbers are published as rebound effects wane (and government programs were wound down), although the hand-off from October was strong with jobs exceeding pre-pandemic levels and "robust" wage gains over the past four months. Young noted retail sales (and guidance) have surprised on the upside so far this Fall, despite supply-side constraints. And elevated household savings and still-hesitant consumer confidence suggest there is still more spending to be unwound as the economic recovery advances — and importantly when supply is available.

Young noted the acute supply-demand imbalance continues to drive new vehicle price inflation: 6.1% y/y in September CPI (0.3% m/m, nsa). Scotia's sales forecast sits at 1.67 million, 1.77 million, and 1.93 million units in 2021, 2022, and 2023, respectively. Young said: "While fundamental economic drivers suggest auto demand should be approaching pre-pandemic levels, auto production capacity likely limits the pace at which supply can meet this pent-up demand; consequently our projections close that gap only by 2023. There is still high uncertainty on this outlook including around the pace of auto production recovery. The emergence of the Omicron variant poses another material risk through further global supply chain disruptions while, domestically, recent weather events in British Columbia could temporarily impact the Canadian auto sector through port and rail turmoil."