Overall retail spending is climbing faster than expected this fall but is being driven “largely” by one thing, according to Statistics Canada. Auto sales.
Retail sales were up a surprisingly strong 0.8 per cent in September from August, to $42.8 billion, Statistics Canada said Tuesday. Excluding sales at motor vehicle and parts dealers, sales were “essentially”unchanged month over month.
“Auto sales surged to a new record in September, continuing the drive toward the strongest annual pace ever and supporting overall retail activity,” Benjamin Reitzes, an economist at BMO, said.
The record boom comes as Canadians continue to take advantage of ultra-low borrowing rates – and long loan terms – to finance their way into a new or used car, truck or crossover, experts say.
Yet some are starting to warn that relatively new financing practices are increasing risks for both lenders and borrowers – and at a time when many Canadian household are carrying elevated debt loads already.
MORE: Vehicle sales hit fresh record, but rising car debt raises red flags
Lending worries
Car loans that are now extending out as long as eight years are enticing some buyers to buy costlier cars they otherwise wouldn’t, some suggest.
“Low monthly payments facilitated by low interest rates and longer amortization periods are encouraging consumers to purchase more expensive vehicles,” ratings agency Moody’s said last month.
- Canada’s dental plan has officially kicked in. Who is eligible?
- Mandatory breath samples now required in every Toronto-area traffic stop: OPP
- Tories grill Liberals in question period about minister’s ties to lobbyist, PPE company
- N.S. mother ‘in shock’ after enduring 17-hour hospital wait with sick baby
Some borrowers are also rolling over existing car debt into new loans, or essentially buying a new vehicle on additional credit before they’ve paid off their last loan — creating “negative equity” where their loan sometimes greatly exceeds the value of the asset that backs it.
MORE: Banks making ‘riskier’ car loans to Canadian consumers, report says
New cars
Statscan said Tuesday sales at new car dealers jumped 3.3 per cent from August to September “on the strength of higher volumes of sales of light trucks,” Statscan said, a category that includes crossover models and other sport utility makes.
Sales at used car dealers jumped 4.4 per cent.
By region, total retail sales by province were led by Ontario, Alberta and Quebec, with the trio accounting for most of the September increase. Economists had been expecting retail sales to rise a more modest 0.5 per cent.
“Gains in these provinces reflected higher sales at new car dealers,” Statscan said.
Comments