Canada Racing Down the Wrong Track

US auto sales peaked in 2016 and fell for a fourth consecutive month in June, while sales in Canada hit a fresh record in the first half of 2017 on an 8.8% increase in light truck sales thanks to (misplaced?) business confidence in construction and oil. Passenger car sales, on the other hand, declined 2%. It’s worth noting that passenger sales have been contracting despite unprecedented incentives and give-a-ways from dealers.
Read Major Disruption Coming, “Decimating” Entire Industries, Says New Report
Consider the below car add from the Financial Post this week. You can lease a brand new 2017 Mazda 3GX in Canada with $1795 down (0n your credit card) and ‘bi-weekly payments’ of $89 for 5 years. What is the actual cost of the vehicle? No one asks.
You can tell dealers are stretching for marginal buyers when they quote bi-weekly payments in case $178 a month sounds too expensive. And therein lies the rub. Everyone who would like to qualify for a car loan/lease has done so, even a couple of times, over the past few years. Now even if auto financing rates could stay at zero forever, there are only so many payments a person can maintain. With more than $2 trillion in outstanding Canadian consumer debt today and flat wages, even using ‘creative’ financing, discretionary consumption had to hit the end of the cash flow tether.

This post was published at FinancialSense on 07/05/2017.