Automotive retail sales in Canada hit a record of 1.89 million new vehicles sold in calendar-year 2015. This is the third consecutive year of record retail sales in Canada. Commercial sales, on the other hand, were a different story. Cumulative sales in the commercial fleet market were flat year-over-year compared to 2014. In 2015, the daily rental and government segments of the fleet industry saw more growth than commercial sales. For instance, government spending on infrastructure has increased, which is positively impacting government fleet sales.

As the second largest country in the world, Canada’s fleet market is as diverse as its geography and it is regional in nature. There is not a single fleet market in Canada, with market dynamics varying by region and industrial sector. For instance, the oil industry is one of the largest fleet segments in Canada. With the global oversupply and collapse in the price of oil, companies in the Canadian energy sector have implemented deep spending reductions. Senior management at oil companies is placing intense pressure on fleet managers to control acquisition and operating expenses. One way is by deferring fleet vehicle purchases or by downsizing to a smaller truck segment, such as moving from ¾-ton trucks to ½-ton trucks to reduce acquisition costs.

Similarly, other Canadian companies have tightened their corporate budgets due to economic uncertainties facing their businesses and adopted temporary “freezes” on new-vehicle orders. It is anticipated that many of the vehicle acquisitions that were deferred will be made up in 2016. The forecast is that commercial fleet sales will continue to remain fleet in calendar-year 2016.

However, there are dangers to arbitrarily extending fleet vehicle replacement parameters that could be counterproductive to the intended goal. Nearly all fleet-related expenses, both fixed and operating, are influenced by when a vehicle is replaced. For instance, deferring replacements and/or extending service lives increase the percentage of the fleet operating outside of its warranty period. As a result, maintenance costs and driver downtime increases. Also, the older the fleet, the higher the likelihood catastrophic failures will occur, which increases the percentage of out-of-stock purchases, the most expensive way to replace fleet vehicles.

Strong Export Market Offsets Soft Oil Industry

The economic slowdown in the oil-rich provinces of Alberta and Saskatchewan has been somewhat offset by growth in other provinces, such as British Columbia, Ontario, and Quebec.

Canada is a net export nation with 75 percent of its exports going to the U.S., its largest trading partner. One factor strongly influencing the commercial fleet market is the foreign exchange rate of the Canadian dollar, which has declined against the U.S. dollar. This has positively impacted the Canadian economy, particularly provinces such as Ontario and Quebec, which have a strong manufacturing sector. The weaker Canadian dollar makes their exporters less expensive in the U.S. Although the strongest vocational fleet segments in the country are energy and construction, Canada is primarily a service-based economy, largely driven by small local businesses. As in the U.S., the small fleet segment is the growth engine for fleet sales in Canada.

Despite the lower fuel prices, the demand for green, low-emission vehicles will continue to grow driven by the outlook of the Canadian federal government. It is expected that there will be a growing trend for businesses and municipalities in certain parts of Canada to adopt green technologies.

Forecast for the Canadian Economy

Historically, overall fleet sales in Canada have always been tied to the robustness of the national economy. Overall improvements in sectors such as housing, construction, and infrastructure assisted in modestly growing overall fleet sales. Construction is playing a bigger role in the economic activity Canada is experiencing in Ontario and Quebec, which has stimulated commercial fleet sales.

The International Monetary Fund (IMF) estimates Canada ended 2015 with growth of 1.2 percent, with Alberta in recession with a 1.3-percent contraction. The IMF forecasts that the Canadian economy will increase an anemic 1.7 percent in 2016. But, these forecasts are tenuous, especially with the ongoing uncertainty of global growth and commodity prices volatility. China is a key driver of global prices, especially for metals, an important Canadian export. An ongoing slowdown in the Chinese economy could put downward pressure on Canadian economic growth.

The downturn in the energy sector is still rippling through the Canadian economy, leading to lower business investment. Despite the recessionary environment in Alberta, throughout the rest of Canada, there continues to be stable household spending, ongoing demand for housing, and gains in employment, all of which are positive signs for Canada’s economy. In addition, the ongoing growth in the U.S. economy and the weaker Canadian dollar is boosting U.S. demand for Canadian exports.

Let me know what you think.

Originally posted on Automotive Fleet

About the author
Mike Antich

Mike Antich

Former Editor and Associate Publisher

Mike Antich covered fleet management and remarketing for more than 20 years and was inducted into the Fleet Hall of Fame in 2010 and the Global Fleet of Hal in 2022. He also won the Industry Icon Award, presented jointly by the IARA and NAAA industry associations.

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