CANADA: TEMPORARY OR SUSTAINED SOFTNESS TO START 2025?
Canadian auto sales in February fell by -1.7% month-over-month to 1.69 mn units at a seasonally adjusted annualized rate (SAAR) according to Wards Automotive (chart 1).
The light vehicle sales rate has declined into the start of the year, when adjusting for seasonality, with the three-month moving average (3mma) falling to 1.73 mn (SAAR), down from 1.85 mn in the fourth quarter of 2024.
Industry guidance suggests that some of this slowdown could be from softness in the electric vehicle segment, as the federal iZEV rebate and Quebec’s Roulez Vert EV subsidy were paused in January amid funding for the respective programs reportedly running out. Quebec’s consumer EV subsidy is expected to resume in April with the new fiscal year, aligning with the previously announced plan to gradually phase out the financial assistance program, whereas the iZEV program faces greater uncertainty, especially in a trade war scenario where governments may have competing program spending priorities.
Economic data towards the end of 2024 had been showing a positive response to lower interest rates, with Canada’s unemployment rate trending around 6.6% as of February, down from 6.9% in November 2024, as well as GDP figures reporting household consumption increased 5.6% q/q (SAAR) in the fourth quarter. However, the US administration’s threat of imposing broad-based tariffs of 25% on non-energy imports from Canada, combined with retaliation from Canada with reciprocal tariffs on up to $155 bn of goods, continues to threaten this rebound in economic activity and weigh on the outlook. Business leaders and representatives from the automotive industry warn that tariffs of such magnitude could grind automotive production to a halt within a week, as the supply chain that is heavily integrated across the North American corridor and would not be able to absorb such costs.
The trade situation continues to be volatile, with tariff threats changing by the day. Our outlook for Canadian light vehicle sales is 1.84 mn in 2025 and 1.83 mn in 2026, but faces downside risk should broad-based tariffs materialize.
UNITED STATES: PERSISTENT GROWTH FACES TARIFF HEADWINDS
US auto sales in February increased by 3.2% month-over-month in seasonally adjusted terms to 16 mn units at an annualized rate (chart 2).
Monthly US auto sales through the first two months of 2025 have pulled back from the surge late last year. The 3mma sales rate through February has slowed to 16.1 mn (SAAR), versus Q4-2024 that averaged 16.5 mn (SAAR), but the pace of new light vehicle sales remains above the 15.9 units sold in annual 2024.
Still-persistent core inflation that is sticky around 3% y/y, along with the unemployment rate averaging around 4.1% have pushed back expectations for further rate cuts from the Federal Reserve in the near term. The Fed lowered the policy rate by 100 basis points across the final three meetings of 2024 to 4.5%, and markets are pricing slower pace of cuts in 2025. The expectation of a gradual normalization in monetary policy is a driving component of economic growth expected to ease in 2025 relative to the strong 2.8% y/y growth in 2024. However, the ramp up in tariff threats and implementation are beginning to weigh on the outlook and consumer and business sentiment.
Our outlook for US light vehicle sales is 16.2 mn in 2025 and 16.5 mn in 2026 which faces downside risk should broad-based tariffs be implemented across North America.
GLOBAL AUTO SALES: BROAD-BASED GROWTH IN AUTO SALES THROUGH 2024
Global auto sales slowed -1.1% m/m (SA) in December after having increased in four of the five previous months (chart 3). Auto sales increased 7.6% q/q (SA) in Q4 resulting from the strong sales towards the end of the year for the largest quarterly growth since Q3-2022. Annual global automotive sales increased 3.5% in 2024. Automotive sales in western Europe ended the year on stronger footing than earlier in the year, increasing 2.4% m/m (SA) in December and 3.9% q/q (SA) in Q4, albeit marginally declined by -0.1% y/y (NSA) in 2024. Automotive sales in eastern Europe increased 0.4% m/m (SA) in December, increased 3.4% q/q (SA) in Q4, resulting in annual sales growth of 22.4% y/y (NSA) in 2024. In the Asia-Pacific region, auto sales decreased by -2.2% m/m (SA) in December, however the average sales rate increased 10.3% q/q (SA) in Q4, with annual sales up 2.8% y/y (NSA) in 2024 owing in large part due to the 5.9% y/y increase in Chinese automotive sales which is the largest market by volume in the region. Meanwhile, vehicle sales in Latin America decreased by -6.0% m/m (SA) in December, weighing on the otherwise 3.2% q/q (SA) increase in sales in Q4, and 9.3% y/y (NSA) growth in 2024. Our outlook for global vehicle sales is 1.8% in 2025 and 1.7% in 2026 (chart 4).
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.