The Car and Truck Fleet and Leasing Management Magazine

Fleet Market in Canada Driven by Both Tailwinds & Headwinds

June 2017, by Mike Antich - Also by this author

Chart courtesy of General Motors.
Chart courtesy of General Motors.

Western Canada has experienced sluggish growth over the past two years due to softness in commodity prices, particularly in the decline of oil prices. The downward pressure on commodity prices has caused a pullback in business investment in many areas, including a decline in the acquisition of fleet vehicles by the oil and energy sector.
But the economic slowdown in the oil-rich provinces of Alberta and Saskatchewan has been somewhat offset by growth in other provinces like British Columbia, Ontario, and Quebec.
As this illustrates, Canada’s fleet market is diverse and its vitality varies by region. As a result, there’s not a single fleet market in Canada and market dynamics will vary by region and industrial sector.

Economic Forecast for CY-2017

The crude oil slump weakened the Canadian dollar against the U.S. dollar. The Canadian dollar has fallen by about 20% against the U.S. dollar since the middle of 2014. On the positive side, a devalued Canadian dollar boosts the tourism industry and helps exporting manufacturers by making their products and services more price competitive. Despite adjustments to the valuation of the Canadian dollar, its value is likely to remain at a level that continues to favor exports.

The Canadian economy is forecasted to achieve an average GDP growth of 2% for calendar-year 2017, according to economic forecasts. For example, growth was reported in 15 out of 20 major industries, according to Statistics Canada. Among the companies leading this growth are those in the manufacturing sectors that produce goods and services for export.

In addition, some economic predictions state that one of the main drivers of growth in 2017 will be crude oil prices. They are anticipated to gain strength with a rebalancing of global supply with global demand, thereby decreasing the probability of future price declines. The prospects of higher and more stable crude oil prices have restored a sense of cautious optimism in Alberta since the beginning of the year, suggesting to Canadian forecasters that business investment may pick up in 2017.

However, attempts to predict the future of crude oil prices are difficult due to the number of variables that drive pricing, which often leads to erroneous forecasts. This may be the case for the forecast of future oil prices in 2017. For instance, on March 10, 2017, U.S. crude prices fell below $50 per barrel for the first time in 2017. At the same time, it was reported that U.S. crude oil stockpiles have risen to record levels. In addition, the U.S. Department of Energy said it expects American oil production to rebound past 9.7 million barrels a day in CY-2018, breaking the record output set in 1970. All of these indicators suggest that the global oversupply of oil may not shrink as fast as anticipated, which risks a continuation of downward pressure on the price of oil.

Canada is a net export nation with 75% of its exports going to the U.S., its largest trading partner. One factor strongly influencing the commercial fleet market is the foreign exchange rate of the Canadian dollar, which has declined against the U.S. dollar. The ongoing growth in the U.S. market and the weaker Canadian dollar boosts U.S. demand for Canadian exports.

Another reason for optimism is that Canadian monetary and budget policies are expected to promote growth in 2017. Proponents argue that even if economic activity accelerates in the next 12 months, growth is unlikely to be strong enough for the Bank of Canada to feel obliged to substantially raise its key interest rate. The thinking is that an interest rate hike, while fending off inflation pressures, would have the negative effect of curbing market demand. The forecast is for interest rates to remain low to stimulate investment and consumption.

Low interest rates have also made auto loans more affordable, stimulating buying in the new car and truck market.

One headwind influencing the Canadian economy is the slowing pace of economic growth in global emerging markets, which will likely dampen economic growth.

Another headwind to the Canadian economy is the record level of consumer debt, which will eventually constrain their buying power.

Analysis of 2016 Auto Sales

Canada is the sixth largest sales market globally for General Motors. In 2016, GM Canada sold a total of 267,341 units, which represented a very strong sales year for GM in a strong overall market. Of this total, 65,826 units were sold as fleet vehicles.

“In Canada, GM has experienced growth for six years straight, and we had another record year in 2016,” said Peter Bagnall, director – fleet and commercial sales for General Motors Canada.

One factor driving growth in retail sales is that the car park for Canadian retail consumers is aged, averaging 10-11 years old, creating pent-up demand.

In 2016, strong retail and fleet sales were experienced by all GM brands – Chevrolet, Buick, GMC, and Cadillac. “We were up 1.5% which equates to about 4,000 more units than the same period in 2015,” said Bagnall.

Chart courtesy of General Motors.
Chart courtesy of General Motors.

A closer examination of retail sales reveals that GM Canada sold 201,514 units in CY-2016, which was an increase of just under 4%. “However, this is really important because it was the first time that GM Canada sold over 200,000 units in combined retail sales by its four core brands – Chevrolet, Buick, GMC, and Cadillac,” said Bagnall.

GM’s sales performance by brand in CY-2016 breaks down as follows:

  • Chevrolet business in Canada was up 2%, marking its best year since 2008. Chevrolet was the fastest growing car brand in Canada in 2016.
  • Buick sales were up just shy of 15%. It was Buick’s best year in Canada in a decade. Much of this growth, Bagnall noted, was attributed to the success of GM’s Enclave, which was up 8% YOY in 2016. Another indicator of Buick’s strength was that the Buick LaCrosse was named the “Best New Large Premium Car” in Canada by the Automotive Journalists Association in December 2016. 
  • GMC sales were down slightly, almost flat versus last year, coming off a record year in 2015. Canada is GMC’s second largest market in the world based on market share. 
  • Cadillac had its best retail sales year in Canada ever, boosted by the ATS, Escalade, and the new XT5 Crossover. 

According to Bagnall, another factor favorably influencing GM sales is that it has the most connected vehicles on the road in Canada. “We have more than any other manufacturer, with over 500,000 units on the road in Canada eqiupped with 4G LTE technology,” added Bagnall.

“From an overall industry perspective, 2016 was a very strong and robust year for automotive sales in Canada. The Canadian automotive industry ended the year with about 1.98 million sales,” said Bagnall.

The forecast for CY-2017 is for continued growth in sales, to 2 million units. “In 2017, we expect another very strong sales year in Canada,” said Bagnall.

Fleet Market Maturity

The commercial fleet business is mature in Canada, but there continues to be fleet growth opportunities. For instance, government spending is increasing as Prime Minister Justin Trudeau follows through with his plan to invest in infrastructure to stimulate the economy. This should positively impact both commercial and government fleet sales.

Canada is primarily a service-based economy, largely driven by small local businesses. The strongest vocational segments for commercial fleet sales in Canada are energy and construction. Construction is playing a bigger role in the economic activity Canada is experiencing in Ontario and Quebec, which has stimulated commercial fleet sales. Large pickups continue to represent more than 40% of the Canadian commercial market.

From a fleet sales point of view, GM Canada sold almost 66,000 units in 2016. “Although down 5% versus 2015, it was done by design,” said Bagnall.

The strategy at General Motors has been to reduce sales into the rental market of the fleet business, while growing fleet sales in the commercial and government sectors.

“GM Canada’s plan is to focus on strengthening its core brands – Chevrolet, Buick, GMC, and Cadillac – and ultimately improve residual values,” said Bagnall. “There’s no question that many of our core vehicles in Canada are seeing a significant uptick in residual value, which is good for everyone. We know the total cost of ownership is paramount to the investment our customers make in their fleet.”

While GM’s rental sales were down almost 8% for the year, the rest of GM Canada fleet is growing. GM’s government sales were up 6.3% and commercial sales were also up 1.2%. “We’re executing the plan. We’re experiencing growth where we planned to grow,” said Bagnall.

Strong Dealer Network

GM’s dealer organization in Canada stands at 451 dealers. “We have the largest dealership network in the business to support your sales and service needs,” said Bagnall.

Approximately, 90%-plus of GM Canada’s dealers are multi-branded, which consists of Chevrolet, Buick, and GMC housed under the same roof, which is different than the way the GM dealer network is structured in the U.S.

“In addition, GM Canada has 125 commercially focused Business Elite dealers, who know fleet, who are experts in the fleet business,” said Bagnall.

In September 2016, GM reached a new agreement with its Unifor union partners. Unifor is a general trade union in Canada, founded in 2013 following a merger of the Canadian Auto Workers and Communications, Energy and Paperworkers unions. It is the biggest union in Canada.

Unifor represents GM’s Oshawa assembly manufacturing facilities, manufacturing facilities in St. Catharines, and Woodstock, which is GM’s largest national parts distribution warehouse in Ontario.

“The manufacturing facilities in St. Catharines builds engines and transmissions for many of our core vehicles. The Oshawa assembly is where GM currently builds the Chevrolet Impala, the Chevrolet Equinox, as well as the Buick Regal and the Cadillac XTS,” said Bagnall.

The CAMI plant, which is not represented by Unifor, is in Ingersoll, Ontario, and produces the all-new Chevrolet Equinox.

In Canada, the compact-crossover segment is the fastest-growing segment in Canada, which is similarly the fastest-growing segment in the U.S.

In other news, GM Canada announced it is going to expand its regional engineering base by close to 1,000 positions over the next few years.

“These engineers will focus on work in the areas of autonomous vehicle software and controls development, active safety and vehicle dynamics technology, infotainment, and connected vehicle technologies,” said Bagnall. “These are critically important areas for the development of new connected and autonomous and the shared vehicle economy and mobility systems."

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