Canadian auto sales fell 0.6% month over month to 1.89 million units at a seasonally adjusted annualized rate (SAAR) in May, based on data from Omdia, said Scotiabank.
The monthly selling rate has trended in the 1.85 million to 1.9 million annualized range since February, an improvement from the three months to January when sales averaged 1.75 million to 1.8 million but still below the two-million rate a year ago.
The improvement in light vehicle sales this spring has been supported by car sales, which have increased an average 9% each month seasonally adjusted since February to the highest level in a single month since early 2024, which has been partially offset by light truck sales that have held relatively flat after increasing 4.4% month-over-month SA in February, noted the bank.
In non-seasonally adjusted terms, May registered 185,100 new light vehicle sales as reported by the same source (-4.4% year over year). Sales remain down compared with the same month a year ago for the eighth month in a row, but this likely continues to reflect distortions from United States tariffs, as demand was pulled into the spring last year by tariff front-running that resulted in a softer H2 2025, stated Scotiabank.
When comparing against the same month in 2024, new vehicle sales rose 6.6%, and are higher for a third consecutive month.
While Q1 gross domestic product was weaker than previously expected, growth should begin to improve over the year, according to the bank. Canada's labor market added 88,000 jobs in May after contracting in three of the first four months to start the year, supporting a drop in the unemployment rate to 6.6% that has averaged 6.7% since January.
Meanwhile, household consumption expenditures grew 1.5% quarter-over-quarter SAAR in Q1, largely driven by spending on services (2%) while spending on goods remains soft (0.7%). The surge in global oil prices pushed headline inflation to 2.8% year over year in April and is likely to stay close to 3% for the remainder of the year before slowing towards the midpoint of the Bank of Canada's 1% to 3% target range next year.
As such, in Scotiabank's latest outlook, it now expects the BoC to hold the policy rate at 2.25% through the summer as the central bank assesses inflation pressures and economic growth, with two 25 basis points hikes to the policy rate in Q4 this year and another in early 2027.
The bank's outlook for Canadian light vehicle sales is 1.84 million this year as it expects sales to trend sideways through the middle of the year, but could remain volatile from month to month. New vehicle sales are expected to begin improving later in the year and into next, rising to 1.88 million in 2027.
However, this outlook faces large uncertainty owing to higher and more volatile oil prices clouding the outlook.