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Canadian Car Sales Expected to Reach Record High this YearOctober 27, 2014
Canadian auto sales are on the road to reaching record highs this year but are expected to slow down in 2015.
In a report released Monday, Toronto-Dominion Bank saTD.T +0.06%ys car sales are headed to finish the year above 1.8 million units, a pace never before achieved.
Some argue that surging auto sales, like a badly tuned engine burning too much oil, have left a pall of potentially toxic debt hanging over Canada’s banking sector and economy.
Canadian banks have not yet run into difficulties due to auto-debt defaults, but the credit costs stemming from them “could rise quickly if unemployment rises or interest rates spike,” bond-rating firm Moody’s Investors Services said a recent report.
TD borrows a well-known phrase from the lexicon of those watching Canada’s over-stretched housing market, saying stronger economic growth and rising incomes should result in a “soft landing” and help keep auto sales at relatively lofty levels even as they slow in the next few years.
A number of factors have fueled the sharp rise in auto sales over the last few years.
TD cites the rising level of car ownership as one. In 2013, there were 78 vehicles for every 100 individuals in Canada, up markedly from 68 in 1994.
Pent-up demand after the recession also contributed, but affordability has been the critical reason for surging auto loans.
“While many expected consumer loan rates to begin rising this year, they actually edged lower, providing more incentives for consumers to purchase a vehicle,” TD says.
Credit availability and longer loan terms have also played key roles.