New Vehicle Sales Collapse in Canada’s Oil Patch
Oil spills into the broader economy.
Canada’s economy has split in two. The resource producing economy is deteriorating at a breath-taking pace, broadsided by collapsing commodity prices. For Canada, the most important commodity is crude oil.
West Texas Intermediate has plunged below $39 a barrel, not seen since the Financial Crisis, and Western Canadian Select to a catastrophic $25 (C$33.32) a barrel. Canadian tar-sands producers are particularly hard hit; they’re the globe’s high-cost producers. And the epicenter of this activity is the province of Alberta.
Then there’s the rest of the economy, which is trying not to wobble too visibly as its foundation is breaking up. It is very likely that Canada is in a “technical recession” – defined as two quarters of negative GDP growth. The first five months already outlined a shrinking economy, dragged down not only by the resource sector but also by other weak links [read… It Gets Ugly in Canada].
Now everyone is waiting for the June GDP numbers to be released. Canada is heading into a general election this fall, and the economy is front and center.
But new vehicles sales are still hanging in there. As in the US, the industry is powered by cheap and easy credit. It’s enabled by a frazzled Bank of Canada that keeps lowering the rates. Subprime customers are being aggressively courted by banks and alternative lenders that lust for the easy profits to be made on folks who think they don’t have a choice. And Wall Street makes a bundle repackaging these subprime auto loans into highly rated structured securities.
So new vehicles sales rose 0.4% in July from a strong July 2014, to 177,844 units, setting a new monthly record, for the seventh month in a row, according to the Canadian Auto Dealer. July sales were 14.8% above the past-five-year average. Year-to-date, sales rose by 2.4% over last year.
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