Market for luxury vehicles booming in Canada
A 2013 Cayenne GTS is driven down a highway. A new report shows that the market for luxury vehicles booming in Canada.
Published Thursday, June 21, 2012 7:36AM EDT
Last Updated Thursday, June 21, 2012 10:22AM EDT
Weak economy? What do you mean the economy is weak? Not if you're rich, and certainly not if you're in the business of making and selling cars to please Canada's wealthiest drivers.
"During May, luxury sales as a group were up by 26.4 per cent and are now up by 14.9 per cent year-to-date," says auto analyst Dennis DesRosiers of DesRosiers Automotive Consultants, noting overall sales of new light vehicles are up 8.2 per cent on the year to date. That means "luxury sales are significantly outpacing the total market," he says in a note to clients.
Consider what happened last month in the world of expensive cars, SUVs (sport-utility vehicles) and crossover wagons:
- Compact luxury SUVs up 50.1 per cent;
- Small luxury sedans up 24.2 per cent;
- Large luxury SUV's 105.9 per cent;
- Intermediate luxury SUV up by 24.1 per cent.
"The only weakness is the highest end luxury sedans (Mercedes-Benz S-Class, BMW 7-Series, Audi A-8) which were down by 1.9 per cent in May, although still up nicely on the year with an increase of 7.3 per cent," says the analyst.
At the same time, pickup truck sales in Canada are on fire. Make no mistake, full-size rigs such as the Ford F-Series and Chrysler's Ram are often pure luxury vehicles with premium price tags approaching $50,000 or even more. DesRosiers notes that pickup truck sales jumped 25.6 per cent in May.
"We don't know for sure, but believe that many of these pickup trucks were bought for personal use versus commercial use, so there may be a substitution effect with other segments," says the analyst. This is rich news for the Detroit Three who dominate sales of pickup trucks, he adds. Or to put it another way, some of Canada's One Per Centers are probably buying a fancy pickup just to show off.
Aha. Auto companies can smell the scent of One Per Centers with a taste for fancy trucks. As Bloomberg reports, Chrysler Group and Ford Motor Co. are racing to satisfy buyers who want pickups loaded with leather, chrome and heated seats. Take Chrysler's new Ram Laramie Longhorn Limited, which in Canada lists for $52,665. It has not just leather upholstery and ritzy running boards, but voice-activated navigation and heated seats. It's a luxury truck with a take-no-prisoners design.
Not to be outdone, Ford has its F-Series Platinum ($58,899) with its heated and cooled power front seats in leather. You also get Ford's Sync voice-controlled infotainment system. Or how about Ford's $64,699 King Ranch F-Series, also with a gorgeous interior and all manner of electronic extras.
So we can all agree that the market for luxury vehicles is booming in Canada. The question is, why?
"Over the last three decades, the rich have gotten richer in Canada, with individual income inequality growing by 16 per cent, says a new paper released by the Department of Economics at the University of British Columbia. I came across news of the UBC paper in a client note from BMO Financial Group.
The wealth gap reality in Canada is not unlike that in the United States, though not quite as stark, notes BMO, pointing out that approximately 8.0 per cent of the total income in Canada was held by 1.0 per cent of the population in the late 1970s. Their share has since nearly doubled to 14 per cent.
The UBC research shows that the top 1.0 per cent have incomes 14 times larger than the average Canadian. "Such an uneven distribution of income hasn't been seen since the Great Depression [in the 1930s], when it reached an all-time high of 18 per cent," says the UBC paper entitled Canadian Inequality: Recent Development and Policy Options.
The UBC research also suggests why sales of luxury vehicles are exploding right across the product spectrum, from compact luxury SUVs to small luxury sedans to Gucci-inspired pickups.
"Top income earners are such a diverse group of individuals that it's hard to come up with a simple explanation for their growing incomes," says the report. In combing through the UBC report, BMO found that 10 per cent work in the finance and insurance industry, 14 per cent are senior managers and CEOs and another 10 per cent are physicians, dentists and veterinarians. "As for the rest, it's anyone's guess," suggests BMO.
The point is, Canada's luxury vehicle buyers are as different as the cars and light trucks they choose to drive. The constant is that the rich are getting richer and they're spending some of their wealth in the booming luxury car market of Canada.
And just how much wealth and income are we talking about. Citing the UBC research, BMO notes that you're a One Per Center in Canada if you earn an average income of $450,000, versus the population average of $36,000. If you want to join the One Per Cent Club you need an income of at least $230,000 a year.
Canada's wealth story might also explain why sales of entry-level vehicles are relatively weak -- up by just 12.7 per cent in May and well below the rest of the market, says DesRosiers, adding that sales of entry-level vehicles are up a paltry 5.3 per cent in a market that was up by 8.2 per cent through the end of May.
The truth is, if you're making $36,000 a year you're buying only the least expensive entry-level car you can find -- or more likely you're buying something used, perhaps held together with duct tape and bailing wire and good intentions. That holds true even for the Gen Y buyers still living in the parents' basement. For free.
But Canada's very rich? Oh, they're on a new-car buying binge the likes of which we've never seen before. Ever. Perhaps the only thing better than being in the One Per Cent is being in the business of selling cars to the One Per Cent.