Healthy U.S. Auto Market, Despite Soft Used Car Prices

TORONTO, ON--(Marketwired - May 06, 2016) - Global car sales accelerated to a 5% y/y gain in March, up from a 3.5% increase during the previous two months. Asia led the advance, as double-digit growth resumed in China, following a moderation in February due to the lunar New Year holidays.

More recent data for April point to a further improvement across North America. The record-setting pace accelerated further in Canada, with purchases climbing to annualized 2.03 million units last month, up from 2.0 million in the first quarter and a full-year 2015 total of 1.90 million. Sales in the United States also regained momentum in April, rebounding to an annualized 17.4 million units alongside soaring light truck purchases. In particular, sales of luxury crossover utilities rocketed ahead nearly 20% above a year ago, with notable strength in the larger luxury segment. This reflects low gasoline prices -- still 20% below the 2015 full-year average -- as well as strengthening income gains.

Disposable income growth has picked up in the United States in recent months, and is now advancing by 4% y/y -- the fastest pace since early 2015. Consumer confidence also remains elevated, with many consumers indicating that this is a good time to make a major purchase.

"Despite record profitability for the two largest North American automakers in early 2016, concern about vehicle pricing and the U.S. sales outlook remains high among investors and many analysts. Auto manufacturers and parts suppliers are trading at multiples well below historical averages and at a large discount to the overall S&P500," said Carlos Gomes, Senior Economist and Auto Industry Specialist at Scotiabank. The latest fear is that an increase in the number of vehicles coming off-lease has started to pressure used car prices and could eventually impact the new vehicle market, leading to weaker new car and truck prices and potentially lower sales. "However, we do not see any evidence of this occurring. In fact, demand for both new and used vehicles continues to strengthen in the United States, with average transactions prices for new models climbing to record highs in early 2016."