Global Auto Report (October 31, 2017) - Scotiabank
GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
Improving Canadian Auto Loan Market Fundamentals
Global sales accelerate further.
Subprime auto loans decline in Canada, but lending to higher credit scores picks up.
Canadian subprime loans account for roughly half the US share.
Delinquencies are virtually non-existent outside of subprime clients.
RECENT GLOBAL NEW VEHICLE SALES DEVELOPMENTS
Global car sales accelerated through the summer, with volumes advancing 4.5% above a year earlier in August, double the growth of the previous three months. South America is leading the way, with a 14% year-to-date gain, including a 21% y/y surge in August. However, purchases have picked up in most regions. Volumes in Asia advanced at the fastest pace in six months, as sales in China hit the highest selling-rate in almost a year. Inventories have also fallen to multi-year lows, pointing to stronger vehicle output.
Sales continue to strengthen in Western Europe, buoyed by improving economic conditions and the strongest consumer confidence in more than fifteen years. Meanwhile, purchases in Eastern Europe have advanced 10% year-to-date, the best performance since the opening months of 2012; gains are broadly-based, with four countries reporting advances of more than 20% y/y in August. Volumes are back on the upswing in Russia, the region's largest market, with double-digit year-over-year sales gains in the last four months. The upturn reflects strengthening income gains and represents a sharp reversal from the cumulative slump of more than 50% in the Russian auto market during the previous four years.
More recent data for September point to a further strengthening in demand across North America. Sales in the NAFTA region picked up to 4.9% y/y last month, the best performance since last November. Canada led the way, with volumes advancing 8% y/y and setting a monthly record for September. However, the US was the big surprise in September, with volumes surging to an annualized 18.5 mn units, the highest since July 2005, and significantly above the average of 16.9 mn during the previous eight months. The rebound was aided by Texans replacing vehicles damaged by Hurricane Harvey. Car sales in Houston jumped 22% above a year earlier last month, rebounding from a 46% y/y plunge in August. The Houston area accounted for 6% of overall US sales in September, triple its normal share.
In Canada, the western provinces continue to lead the advance in new vehicle sales. Preliminary September volumes point to a fifth consecutive month of double-digit year-over-year gains. This stronger-than-expected performance has led us to increase our full-year 2017 sales forecast to 2.03 mn units.
AUTO LENDING DECELERATES
The Canadian and US auto loan markets have experienced rapid growth in recent years, raising concern among some analysts and credit rating agencies, especially since media headlines began highlighting the increase
CONTACTS
Carlos Gomes 416.866.4735 Scotiabank Economics carlos.gomes@
Chart 1
Auto Loan Growth Slows
16 y/y % change 14
12
10
US
8
6
Canada
4
2
0 11 12 13 14 15 16 17
Sources: Bank of Canada, Equifax, New York Federal Reserve.
Chart 2
Fewer Subprime Auto Loans in Canada
24 subprime share of total auto loans
22
US
20
18
16
Canada
14
12
10
15
16
17
Sources: TransUnion, New York Federal Reserve.
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GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
in default rates in the United States. However, we point out below that these risks are overstated, especially in Canada, where subprime auto loans represent a small and declining share of overall household loans.
Automotive lending expanded at a double-digit pace in both Canada and the United States during much of the current economic expansion, as credit availability improved following the global economic downturn of a decade ago. Year-overyear growth in auto loans peaked in Canada at more than 15% y/y in the first half of 2015, nearly double the advance in other types of household credit facilities. However, the pace of auto loan growth has since moderated to single-digits in both countries (chart 1).
The slowing in auto loan growth is especially evident in Canada, with lending for new vehicles advancing only 4.6% y/y in the second quarter of 2017, a percentage point lower than overall household credit growth. This reverses the sharp outperformance from early 2010 through mid-2015. In fact, auto loan growth in Canada is now even lagging disposable income growth, highlighting the improving fundamentals in the Canadian auto loan market. This also represents a sharp divergence from developments in the US where, despite some recent moderation in auto loan growth, autos remain the fastest-growing component of US consumer credit. According to the New York Federal Reserve, US auto loan growth was still nearly 8% y/y in mid-2017, outpacing overall household credit growth of 4.5%.
Canadian vehicle sales continue to climb to record highs, but much of the growth has recently shifted to leasing, prompting a moderation in auto loan growth. Leasing has improved vehicle affordability, by reducing the monthly payments required to drive a new car or light truck. Data from DesRosiers Automotive Consultants indicate that leasing now garners more than one-third of the Canadian retail new vehicle market, up from 19% four years ago and only 7% in 2009 during the global financial crisis. The rising popularity of leasing has driven the share of auto loans to less than 60% of the Canadian new vehicle market, the lowest level of the past decade and down from more than 68% in 2010.
FEW SUBPRIME AUTO LOANS IN CANADA
The slowdown in Canadian auto lending is taking place at the lower end of the credit spectrum--among subprime customers. In contrast, loans to more creditworthy clients continue to gain momentum, pointing to an improving credit profile. Data from TransUnion indicate that subprime auto loans declined 7% below a year earlier in the second quarter, a sharp reversal from nearly 5% y/y growth in late-2016. Meanwhile, loans to customers with a low delinquency history have accelerated to nearly triple the pace of a year ago. As a result, we estimate that subprime loans now represent only 12% of the Canadian auto market, compared with 21% in the US (chart 2). Auto loans also have a lower delinquency rate in Canada than other credit products.
INTERNATIONAL CAR SALES OUTLOOK
(millions of units)
1990?99
2000?13
2014
2015
2016
2017f
TOTAL SALES North America* Canada United States Mexico
Western Europe Germany
Eastern Europe Russia
Asia China** India
South America Brazil
39.20 16.36
1.27 14.55
0.54
13.11 3.57
1.18 0.78
6.91 0.43 0.31
1.64 0.94
53.74 17.74
1.61 15.15
0.98
13.79 3.25
3.03 1.83
16.08 6.52 1.18
3.10 1.90
71.18 19.42
1.85 16.44
1.13
12.11 3.04
3.81 2.49
31.69 18.37
1.87
4.15 2.50
72.61 20.64
1.90 17.39
1.35
13.20 3.21
3.15 1.60
32.29 20.01
2.06
3.33 1.82
77.29 21.05
1.95 17.50
1.60
13.97 3.35
3.14 1.43
36.06 23.57
2.09
3.07 1.39
79.58 20.75
2.03 17.10
1.62
14.39 3.47
3.39 1.55
37.58 24.28
2.23
3.47 1.53
*Includes light trucks. **Includes crossover utility vehicles from 2005. Sources: Scotiabank Economics, Ward's Automotive Reports, Bloomberg.
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GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
CANADA Cars Domestic Imports Light Trucks
UNITED STATES Cars Light Trucks
CANADA/US MOTOR VEHICLE SALES OUTLOOK
1991?05 Average
2006?14
2015
2016
1,398 797 583 214 601
15.5 8.3 7.2
(thousands of units, annualized)
1,643
1,898
783
714
491
476
292
238
860
1,184
(millions of units, annualized)
14.1
17.4
6.9
7.5
7.2
9.9
1,949 662 438 224
1,287
17.5 6.9
10.6
2017 Jan-Aug ** Annual f
2,045 658 468 190
1,387
17.0 6.1
10.9
2,030 650 460 190
1,380
17.1 6.1
11.0
NORTH AMERICAN PRODUCTION*
CANADA UNITED STATES MEXICO
15.58 2.50
11.67 1.41
(millions of units, annualized)
14.25
17.95
2.24
2.28
9.53
12.10
2.48
3.57
18.17 2.37
12.20 3.60
17.45 2.26
11.21 3.98
17.50 2.30
11.30 3.90
*Includes light, medium and heavy trucks. **Canadian sales are Scotiabank estimates. Sources:Ward's Automotive Reports, Statistics Canada.
CANADA
ATLANTIC
CENTRAL Quebec Ontario
WEST Manitoba Saskatchewan Alberta British Columbia
VEHICLE SALES OUTLOOK BY PROVINCE*
(thousands of units, annual rates)
1994?05 Average
2006?14
2015
1,446
102
936 366 570
408 42 36
166 164
1,643
123
1,017 411 606
503 48 49
231 175
1,898
140
1,205 444 761
553 56 54
236 207
2016
1,949
140
1,265 458 807
544 55 51
220 218
2017
Jan-Aug**
Annual f
2,045
145
1,300 452 848
2,030
142
1,295 450 845
600
593
60
60
57
55
248
248
235
230
*Includes cars and light trucks. **Scotiabank estimates. Sources: Statistics Canada, Canadian Vehicle Manufacturers' Association.
900 thousands of units
800
VEHICLE SALES BY PROVINCE
300 275
thousands of units
Alberta
250
700
Ontario
225
600
500
400
Quebec
200
175
British
150
Columbia
125
100
300
75
Atlantic
200 80 84 88 92 96 00 04 08 12 16
50 80 84 88 92 96 00 04 08 12 16
Includes cars and trucks (light, medium and heavy). Shaded bars indicate U.S. recession periods. Source: Statistics Canada.
70 thousands of units
60
50
Manitoba
40
30 Saskatchewan
20 80 84 88 92 96 00 04 08 12 16
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GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
AUTO MARKET SHARE BY MANUFACTURER -- CANADA*
(thousands of units, not seasonally adjusted)
2016
Jan to Sept
Units
% of Total
2017
Jan to Sept
Units
% of Total
2016
Sept
Units
% of Total
TOTAL Big Three General Motors Ford Chrysler
Japanese Honda Toyota Nissan Mazda Mitsubishi Subaru
Hyundai Volkswagen Kia BMW Mercedes-Benz Other
522.3 107.6
53.4 37.3 16.9
227.4 72.3 71.5 39.0 24.9 7.7 12.0
67.2 38.1 31.5 17.9 17.6 15.0
100.0 20.6 10.2 7.2 3.2
43.5 13.8 13.7
7.5 4.8 1.5 2.3
12.9 7.3 6.0 3.4 3.4 2.9
516.0 101.4
54.1 31.7 15.6
232.2 76.7 70.5 36.8 27.1 6.6 14.5
57.1 39.3 31.8 17.3 18.0 18.9
100.0 19.6 10.5 6.1 3.0
45.0 14.9 13.7
7.1 5.2 1.3 2.8
11.1 7.6 6.2 3.3 3.5 3.7
58.2
100.0
12.3
21.0
7.8
13.4
3.5
6.0
1.0
1.6
25.3
43.5
8.8
15.1
7.8
13.5
3.9
6.8
2.6
4.5
0.7
1.3
1.4
2.4
7.0
12.0
4.0
6.8
3.5
6.0
2.2
3.9
2.3
4.0
1.6
2.8
*Source: Dealer sales from the Global Automakers of Canada.
TOTAL Big Three General Motors Ford Chrysler
Other Domestic
Japanese Honda Toyota Nissan Mazda Mitsubishi Subaru
Hyundai Kia
Other Imports
LIGHT TRUCKS
TRUCK MARKET SHARE BY MANUFACTURER -- CANADA*
(thousands of units, not seasonally adjusted)
2016
Jan to Sept
Units
% of Total
2017
Jan to Sept
Units
% of Total
2016
Sept
Units
% ot Total
1,008.5 550.9 146.1 201.5 203.3
100.0 54.6 14.5 20.0 20.1
1,098.2 590.4 178.4 214.5 197.5
100.0 53.8 16.3 19.5 18.0
118.2 63.1 17.7 26.7 18.7
100.0 53.4 15.0 22.6 15.8
28.7
2.8
33.0
3.0
3.8
3.3
286.0
28.4
316.6
28.8
34.7
29.3
69.5
6.9
77.9
7.1
8.8
7.5
98.0
9.7
104.8
9.5
11.4
9.7
65.3
6.5
77.5
7.1
7.8
6.6
27.9
2.8
29.9
2.7
3.4
2.8
9.4
0.9
10.9
1.0
1.2
1.1
25.3
2.5
26.5
2.4
3.2
2.7
45.1
4.5
46.4
4.2
4.7
3.9
24.5
2.4
28.0
2.6
3.0
2.6
73.3
7.3
83.8
7.6
8.9
7.5
986.1
97.8
1,074.7
97.9
115.3
97.5
*Source: Dealer sales from the Global Automakers of Canada.
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2017
Sept
Units
% of Total
60.3
100.0
12.5
20.7
8.6
14.2
3.2
5.4
0.7
1.1
26.0
43.2
8.5
14.1
8.7
14.4
3.7
6.2
2.8
4.7
0.7
1.1
1.6
2.7
6.2
10.3
4.4
7.3
4.9
8.1
2.2
3.7
2.0
3.3
2.1
3.4
2017
Sept
Units
% of Total
129.5 64.1 18.6 27.7 17.8
100.0 49.5 14.4 21.4 13.7
4.2
3.2
40.3
31.1
9.7
7.5
13.3
10.3
9.7
7.5
4.0
3.1
1.4
1.1
3.5
2.7
5.8
4.5
2.9
2.2
12.2
9.5
126.4
97.6
4
CANADA
ATLANTIC Newfoundland Nova Scotia New Brunswick Prince Edward Island
CENTRAL Quebec Ontario
WEST Manitoba Saskatchewan Alberta British Columbia
Source: Statistics Canada.
AUTO SALES BY PROVINCE
(thousands of units, not seasonally adjusted)
2016 Jan to Aug
2017 Jan to Aug
464.0
458.2
34.0 7.0
14.2 10.5
2.3
33.3 6.6
15.1 9.5 2.1
328.7 141.4 187.3
325.0 132.7 192.3
101.3 10.1 6.4 33.2 51.6
99.9 9.7 6.2
33.4 50.6
GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
2016 Aug
58.6
4.0 0.7 1.6 1.4 0.3
42.6 17.8 24.8
12.0 1.3 0.8 3.7 6.2
2017 Aug
60.9
4.7 0.8 2.3 1.3 0.3
43.4 18.7 24.7
12.8 1.2 0.8 4.4 6.4
CANADA
ATLANTIC Newfoundland Nova Scotia New Brunswick Prince Edward Island
CENTRAL Quebec Ontario
WEST Manitoba Saskatchewan Alberta British Columbia
TRUCK SALES BY PROVINCE* (thousands of units, not seasonally adjusted)
2016 Jan to Aug
2017 Jan to Aug
893.5
961.7
65.0
68.2
16.5
16.9
23.4
26.5
21.3
20.9
3.8
3.9
555.6 180.7 374.9
580.1 184.5 395.6
272.9 28.5 28.2
117.0 99.2
313.4 32.5 32.2
136.9 111.8
*Light, medium and heavy trucks. Source: Statistics Canada.
2016 Aug
116.3
8.3 2.1 3.0 2.7 0.5
72.2 23.0 49.2
35.8 4.0 3.8
15.0 13.0
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2017 Aug 125.3 9.2 2.3 3.4 2.9 0.6 74.4 24.4 50.0 41.7 4.7 4.3 18.0 14.7
5
TOTAL
CAR Chrysler GM Honda Toyota
TRUCKS* Chrysler Ford GM Honda Toyota Others
CANADIAN MOTOR VEHICLE PRODUCTION (thousands of units, not seasonally adjusted)
2016 Jan to Sept
2017 Jan to Sept
1,801.1
1,691.2
611.4 182.0 91.4 156.4 181.6
561.4 168.4 70.1 158.4 164.5
1,189.7 236.5 208.0 300.4 159.4 273.8 11.6
1,129.8 231.1 192.1 248.8 169.1 274.1 14.6
*Light, medium and heavy trucks. Source: Ward's Automotive Reports.
GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
2016 Sept
204.7
71.2 20.7 10.9 19.1 20.5
133.5 26.5 22.1 34.1 18.0 31.5 1.3
2017 Sept
162.7
63.1 20.1 8.5 18.3 16.2
99.6 20.7 18.6 9.2 19.3 29.6 2.2
Canada -- Motor Vehicle Production
3.4
3.4
quarterly
3.0
3.0
Total
2.6
2.6
Canada -- World Auto Trade Balances
50
50
billions of dollars
40
40
Assembled vehicles
30
30
2.2
1.8 Cars
1.4
2.2
20
20
Total
1.8
10
10
1.4
0
0
1.0
1.0
-10
-10
Trucks*
Parts
0.6
0.6
-20
-20
0.2
0.2
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
-30
-30
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Millions of units, seasonally adjusted annual rates. *Light, medium and heavy trucks. Source: Ward's Automotive Reports.
2017 data are January-August annualized. Source: Statistics Canada.
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GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
New & Used Car Prices
Scotiabank Car Price Indicators -- Canada
25 Used*
year-over-year per cent change 25
15
New
15
5
5
CPI
-5
-5
-15
-15
79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
*Scotiabank estimate from Canadian Black Book data. Sources: Canadian Black Book, Statistics Canada.
Scotiabank Car Price Indicators -- Canada
20
20
thousands of dollars by age of car, seasonally adjusted
18
18
16
16
14
14
12
1 Year
12
10
10
8
2 Year
8
6
4 Year
6
4
4
2
2
7980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Scotiabank estimate from Canadian Black Book data.
Scotiabank Car Price Indicators -- United States
year-over-year per cent change
25
25
15
Used
15
5
CPI
5
New
-5
-5
-15
-15
79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Consumer price indices for new and used cars. Shaded areas indicate recession periods. Source: U.S Bureau of Labor Statistics.
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GLOBAL ECONOMICS | GLOBAL AUTO REPORT
October 31, 2017
CANADIAN CORPORATE FINANCIAL PERFORMANCE MOTOR VEHICLE DEALERS AND REPAIR SHOPS
Annual
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Quarterly at annual rates 2016Q2 Q3 Q4 2017Q1 Q2
Average (89?16) Low (89?16)
Net Income After Tax ($ mil) 571 799 942 1089 1142 1392 1649 1664 1748 2215 2714 2929 2963
3592 3116 2852 2180 3728
930 -68
Definition of Ratios: Pre-tax Profit Margin: pre-tax income/sales Inventory Turnover Ratio: sales/inventory Source: Statistics Canada.
Pre-Tax Profit
Margin (%) 0.69 0.93 1.20 1.41 1.43 1.84 2.06 1.99 1.97 2.32 2.60 2.63 2.40
Inventory Turnover
Ratio 4.98 5.35 5.16 5.05 5.04 5.34 4.91 5.17 4.86 5.08 5.09 5.16 5.03
Interest Coverage
Ratio 2.25 2.55 2.64 3.36 3.51 4.85 5.34 5.19 5.32 6.64 7.41 7.54 7.70
Debt/ Equity Ratio
3.17 2.74 2.75 2.56 2.44 2.07 2.11 2.02 2.03 2.02 1.90 1.93 1.96
Return on Shareholders
Equity (%) 10.49 12.90 14.37 15.13 14.66 16.99 18.09 17.44 16.71 20.08 21.03 21.31 20.02
2.43
5.49
2.43
5.17
2.65
4.84
2.65
4.32
2.43
5.18
1.32
6.04
0.10
4.38
8.98
1.97
8.05
1.94
6.99
1.94
6.18
2.08
8.52
2.07
3.38
2.34
1.10
3.57
Interest Coverage Ratio: (pre-tax income and interest payments)/(interest payments) Debt/Equity Ratio: (short-term and long-term debt)/total equity Return of Shareholders' Equity: after-tax income/total equity
24.56 20.71 18.62 14.27 23.88
12.09 -1.20
Retail Auto Dealer Bankruptcies
10
10
number of bankruptcies
8
8
2014
6
2013
6
2012
4
4
2
2
0
0
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
New car dealers only; cumulative total during the year. Source: Office of the Superintendent of Bankruptcy.
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