Here’s a surefire recipe for a surge in high-end vehicle sales: low gas prices and even lower interest rates. Add in large helpings of rising home prices, generous amounts of wealth effect and top with a dash of rising stock values.
Canadians are experiencing all five ingredients this year, and the roadways are showing it. More than one in ten vehicles sold last month was a luxury make – the highest percentage on record, a new report from Scotiabank’s auto economist Carlos Gomes says.
“Luxury vehicles have outperformed in every region this year,” Gomes said. “Luxury volumes have even edged up in Alberta” where oil prices are weighing heavily on the provincial economy (something that’s starting to show on the national scene too).
B.C. boom
British Columbia is the country’s “luxury leader” though, where towering home values are enticing many into purchasing — or financing – a high-end ride, Gomes said.
Fifteen per cent of all car sales in B.C. are now in the luxury category. “This reflects the high concentration of wealth among the home-owning ‘baby boomers’ in the province,” the Scotia economist said.
Statistics Canada data shows average B.C. household wealth to be more than 30 per cent higher than the national average, “with principal residences accounting for most of the wealth.”
MORE: Home prices are surging again in Vancouver and Toronto
What defines a luxury vehicle? Good question. High-end brands like Mercedes, Lexus and Audi have started producing cheaper vehicles to net wider sales, with some entry models starting in the $30,000 range. But typically, the luxury category qualifies as a new vehicle with a starting point of around $50,000, according to industry experts.
The boom in luxury accounted for virtually all the growth in total new vehicle sales last month, according to BMO Capital Markets. Luxury imports were up by fifth last month compared to May 2014, “accounting for all of the sales gain for the month,” Alex Koustas, a BMO economist, said.
It’s not just surging home values in Vancouver and B.C. that’s powering the top end of the vehicle market. It’s real estate elsewhere, too.
Detached homes in Toronto rose a scorching 18.2 per cent, pushing them further into seven-figure territory while doling ample amounts of wealth effect – i.e., confidence to spend or borrow against the value of your home — to homeowners across the region.
“Perhaps Canadians, suddenly finding themselves in million dollar homes, are now buying a car to match?” Koustas said.
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