TORONTO - Sales of new vehicles in Canada this year will be the second highest on record despite rising fuel prices and the economic headwinds coming from the United States, Bank of Nova Scotia's (BNS.TO: Quote) economics unit said on Wednesday.
Scotia Economics said the strong 6 percent rise in sales so far in 2008 prompted it to revise its 2008 forecast to 1.69 million units from 1.61 million.
"The strength reflects improved vehicle affordability as automakers have lowered new vehicle prices to bring them more in line with U.S. prices, as well as ongoing employment gains," said Carlos Gomes, senior economist and auto industry specialist at Scotiabank.
Automakers have lowered sticker prices and increased incentives in response to the strong Canadian dollar, which has made imported vehicles and parts cheaper. The Canadian currency gained about 17.5 percent in 2007 against the U.S. dollar and is now around par with the greenback.
A one-percentage point reduction in Canada's goods and services tax also helped lower the average price for a new car in Canada to about C$25,000, down from C$26,000 in late 2007 and the lowest level since early 2005, the report said.
If sales were to continue at their present pace, they would hit 1.78 million units, and break the record set in 2002. But Scotiabank expects the recent spike in gas prices, along with softer economic conditions, to moderate sales in the second half of the year.
SALES WEAKEN IN THE UNITED STATES
Scotia Economics lowered its forecast for new vehicle sales in the United States as the downturn in the U.S. housing market, a weakening U.S. economy and surging gasoline prices have led to a slump in sales.
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