CANADA

Canadian auto sales showed moderation in January as COVID-19 restrictions weighed on purchase activity. DesRosiers Automotive Consultants Inc. estimates that new vehicle sales declined by 17.4% y/y. On a seasonally adjusted basis, sales were down by around 6% m/m (with caution around this indicator given only quarterly reporting by OEMs). The vast majority of the Canadian economy was under stringent COVID-19 restrictions for most of the month so this dampening in January is not alarming. Even with dealerships opened, many Canadians likely opted to defer purchases. The weakness is likely transitory and could be expected to fuel some pent-up demand in the months ahead. It does underscore the potential for continued volatility in monthly sales over the next couple of quarters as COVID-19 still circulates among communities and as inventory shortages hamper auto sales. Otherwise, economic indicators continue to outperform consensus forecasts: GDP for November was revised substantially higher last week while guidance for December holds positive expectations; November retail sales (latest available) came in stronger than anticipated (1.3% m/m); while December job losses were not as bad as expected in light of lockdowns that began that month. Boding well for auto sales, the Conference Board reported another increase in consumer confidence in January, surpassing March 2020 levels for the first time. We maintain our forecast for a healthy rebound to 1.8 mn units in 2021, with improvements weighted towards the second half of the year once immunizations are broad-based and fleet comes back on line as travel resumes. There is some upside to this forecast, notably around stronger policy supports underpinning recoveries on both sides of the border, but also still considerable downsides related to the trajectory of the pandemic and the ability to effectively vaccinate sufficient populations in a timely manner.

UNITED STATES

US auto sales showed continued momentum in January despite pandemic headwinds with a 2.5% m/m (sa) increase. This follows a 3.3% m/m uptick in December purchases. Sales landed just 3.7% below last January’s levels. Much like during the first wave of COVID-19, neither government-mandated nor self-imposed restrictions provided major headwinds (at least relative to other countries) to retail auto sales. Towards the end of the month, restrictions were already loosening in major markets such as California and, importantly, many Americans received USD600 stimulus cheques with reasonable hopes for more. The Conference Board reported an uptick of almost 1 ppt in auto purchase intentions (to 10.7%) in January. Consumer sentiment will likely be further emboldened in the months ahead with additional household support and extended unemployment benefits, countering expectations that mass vaccinations will take time. Consensus forecasts also expect that job growth returned in January after dipping in December as jobless claims declined towards the end of the month. The strength of the auto sales recovery is creating its own challenges with production lags (initially pandemic-related, now chip-related) leading to inventory shortfalls that are expected to last at least through the first quarter. With a solid hand-off from 2020 and a strong start to 2021, we have revised upward our 2021 sales outlook to 16.7 mn units that incorporates the impacts of additional stimulus on US consumption. There are still downsides to this outlook, particularly related to pandemic risks. 

 

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