Strategy

Slight rise in auto sales expected

Price cuts to new motor vehicles in May should help offset plummeting SUV, truck purchases, say analysts.

Healthy sales of price-reduced cars will help offset a decline in SUV and light truck purchases when Canada’s new motor vehicle sales figures for June are announced Friday, according to analysts.

“We’ve seen manufacturers move to reduce prices, and that has improved vehicle affordability, so we’re not expecting a dramatic falloff going forward,” said Carlos Gomes, a senior economist at Scotia Capital (TSX: BNS) who tracks the automotive sector.

The more attractive price tags are the direct result of a consumer backlash last fall, Gomes said. At that time, a significant amount of media coverage was devoted to the fact that car prices in Canada were higher than those in the U.S., despite the loonie having become stronger than the American greenback.

“Because of the high-profile coverage, Canadian sales weakened quite significantly. Manufacturers, in order to stimulate volumes here, reduced their prices, and that has certainly had a positive effect.”

New motor vehicle sales rose by 1,650 units, or 1.1%, in May from April. In a note to clients last week, Scotia Capital economists predicted only a 0.2% uptick in June. The downward trend can be attributed to rising gas prices that have discouraged consumers from purchasing new vehicles, Gomes said.

He added that the “Big Three” North American automakers — Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler — will continue to fare worse than Japanese and European competitors, due to their reliance on the gas-guzzling SUVs and pickups consumers have recently shunned.

As all three scramble to reorient their lines to include more fuel-friendly offerings, Chrysler might have the hardest time adjusting to the new reality, Gomes said.

“Given the international operations that both Ford and GM have, and the fact that they have a lot of small cars that they sell overseas, they would be in a better position to adjust their product mix more quickly that Chrysler, which relies on North America for most of its sales.”

In another note last week, HSBC Canada (TSX: HSB.PR.C) said it expects no overall change in new vehicle sales from May to June, but sees the decline in SUV sales — down 7.6% year-over-year as of May — to continue.