After a solid performance through October, Canadian vehicle sales began to slump in late 2008 as the resource-heavy economies of Western Canada succumbed to the global economic downturn, according to a report released Monday by Scotia Economics.

“We have reduced our 2009 Canadian sales forecast to 1.38 million units as the weakness has intensified, alongside a sharp reversal in purchases in British Columbia and Alberta,” says Carlos Gomes, Scotiabank senior economist and auto industry specialist. “Preliminary data through February indicate that sales in these two provinces have plunged 35% year-over-year (y/y), nearly 10 percentage points worse than in the rest of Canada.”

Car and light truck purchases in British Columbia have fallen to an annualized 130,000 units in the first two months of 2009, more than 30% below the record of 198,000 set in 2007. The slowdown reflects slowing construction activity, the ongoing retrenchment in the forest products sector and a sharp deceleration in employment prospects in recent months. However, the downturn will be cushioned by a $14 billion investment in infrastructure projects announced in the latest provincial budget, Scotia Economics says.

The sharp decline in oil prices from their mid-2008 peak has led to more than a 30% drop in drilling activity in Alberta and the cancellation of over $40 billion of capital projects, including new oil sands upgrades. This loss of momentum has spilled over to services, with retail sales grounding to a halt, and vehicle sales posting double-digit year-over-year declines since November.

“In contrast, Saskatchewan is proving to be one of the best places to ride out the current economic storm. The province continues to enjoy low unemployment and increased employment opportunities,” adds Gomes. “Consumer spending remains a key growth driver — as employment gains approaching 3% y/y will keep vehicle sales at 46,000 units in 2009, well above the 41,000-unit average of the past five years, and only marginally below the 2008 peak of 48,000.”

Manitoba is expected to post one of the smallest declines in vehicle sales in 2009, with purchases totaling 41,000 units, down from an average of 44,000 over the past five years.

Vehicle sales in Ontario are expected to post the steepest drop since the economic downturn of the early 1980s, undercut by sharply lower manufacturing activity. In particular, auto sector production will drop by close to 30% in 2009, the largest decline on record, and the second-consecutive double-digit annual fall-off.

Car and light truck sales in Quebec are expected to fall by more than 15% this year, as the province’s large forest products, manufacturing and growing mining industries all face considerable challenges.

Unemployment in Atlantic Canada has increased by more than two percentage points over the past year, undercutting purchasing power at a time of reduced transfers from Atlantic Canadians working in Alberta oilfields. Vehicle sales are likely to fall to about 110,000 units this year from a record 127,000 in 2008, but roughly in line with the average of the past decade. Purchases are expected to hold up better in Halifax, where employment growth remains close to 3% y/y, buoyed by robust hiring in construction, professional and technical services, and the public sector.

IE