Canadians love luxury cars, as banks love increasing debts

Article by Christian Andrei, on February 14, 2013

While Canadians have been staying away from too much housing debt, sales of Porsche and BMW have been increasing. According to DesRosiers Automotive Consultants Inc.’s data that Bloomberg gathered, Mercedes-Benz sales have grown by 168% since 2004 to 33,116 units last year. On the other hand, Porsche SE sales have climbed 65%. Sales of BMW 3 Series sales surpassed the figures for the Accord last year as luxury automakers attempted to attract Canadians by expanding the offerings and putting the prices of several models nearer to traditional family cars.

Since 2007, the lending of Canada's major banks to car buyers has more than tripled the year before the global credit crisis. Automakers have been increasing their dealer financing. The demand for cars may weaken the Bank of Canada's prediction that consumer debt will stabilize around a record 165% of disposable income.

This is a reason that policy makers mentioned last month for postponing plans to increase interest rates. Tom Higgins, Burlington, Ontario-based vice president of analytics and decision services at credit-reporting company TransUnion Corp., said that Canadians are turning more confident and appear to be more willing to raise the debt level at a quicker rate. He said that this situation is a “little bit disconcerting” from that perspective considering all the information and warnings that the Bank of Canada and the finance minister have given.

Canada’s economy was able to recover from the worldwide financial crisis quicker than the other Group of Seven members. In fact, not one of its banks had been unsuccessful or needed additional public capital. Canadian officials are worried that too much borrowing may disrupt the No. 11 biggest economy in the world if consumers can’t repay their debts. Consumer debt levels are already higher compared to the U.S. and United Kingdom as Carney has maintained its policy interest rate at 1% since 2010.

Topics: canada, luxury car

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