Auto sales in Canada hit another monthly sales record in October, extending a seven-month run and continuing 2014’s record boom.
Vehicle sales rose 6.5 per cent last month compared to October of 2013, led by a “brisk” double digit rise in light truck sales, which includes crossover and sport-utility makes, which were up 10.7 per cent according to the Global Automakers of Canada.
David Adams, president of the automakers association, said “fierce competition” among dealers as well “generous financing” were responsible for much of the rise.
Ultra low borrowing rates and longer payback times on car loans have underwritten a record run in auto sales this year, which was supposed to see sales slow down from 2013’s record-smashing rate.
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General Motors, Ford and Chrysler aren’t members of the automakers association, which represents European and Asian car companies.
The Detroit car companies posted similarly robust sales last month, as a group. GM reported a seven per cent jump while the number of Chrysler makes sold collectively surged by more than 23 per cent. Ford, the highest- selling car maker in the country, reported a rare dip in sales, with the number of units sold down 2.6 per cent.
Canadians are on pace to buy more than 1.8 million vehicles this year, industry watchers estimate.
Roaring sales, debt
Some have begun raising red flags about the torrid sales pace, however, and the role inexpensive interest rates and new financing methods are playing in the boom.
In a report last month, Moody’s said auto lending has become the fastest growing source of consumer debt, rising at an annualized pace of 20 per cent over the past half decade. Loan terms have also been extended out over further and further payback times, with the average loan now sitting at over six years in length.
The ratings agency said the new lending practices prolong the debt burden on borrowers while increasing the odds of default as well as losses for the lender.
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Moody’s analysts said the lengthening out of car loans demonstrated loosening lending standards among those making the loans, including at some banks.
Economists at TD Bank said last week they expect auto sales to slow down, but for the pace to remain at “lofty” levels for several months to come as borrowing rates remain low.
TD, alongside other members of Canada’s big banks, has raced into auto lending in recent years as leasing options diminished in the market.
Asked Monday about the rise of longer and longer financing terms for customers buying cars, Bank of Canada governor Stephen Poloz said strong “pent up” demand continued to drive the market up.
“Even so, the Bank of Canada is keeping an eye on the situation,” Benjamin Reitzes, senior economist at Bank of Montreal said.
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