I thought I would introduce myself to Canadian auto dealer readers with some humour and self-derision.

You’ve probably heard this old adage before. “What happens when you put 10 economists in a room? You’ll get 11 opinions!”

Economists are notorious for disagreeing on almost everything. I would even add that if you put one economist in a room, you will get two different opinions on the same subject. Then, what’s better suited for a young and eager economist than to have an entire column dedicated to a discussion on economic and public policy topics?

That is to say, I am excited and honoured to join the ranks of columnists for the Canadian auto dealer. I have recently joined CADA as their new economist and I wanted to properly introduce myself to the readers and auto industry community.

I have served as a senior policy advisor to various federal cabinet Ministers. In these roles, I have dealt with complex nationwide issues that impacted a variety of public policy areas.

I also have worked as a researcher for a leading think tank and have been involved in the Organization for Economic Co-operation and Development (OECD).

I hold both a Master degree and a Bachelor of Arts with Honours in Economics. Having lived and attended college in Montreal, I am fluently bilingual and currently serve as an active member of the Canadian Armed Forces Reserves.

We forecast that this year’s sales will fall just off 2017’s record sale of two million vehicles.

While I bring a wealth of experiences, lessons and successes to the table, I am equally as humbled to become a part of the CADA team and write a column in this magazine for our car dealer members.

I have big shoes to fill. My predecessor Michael Hatch, for the past ten

years, has done an excellent job providing dealers across the country with accurate and timely data and also writing interesting opinion pieces in this column. I am up to the challenge.

The auto sector plays a key role in the Canadian economy. In addition to being a hub for R&D, it contributes $20 billion dollars to Canada’s annual GDP. The industry directly employs more than 130,000 people, with an additional 400,000 jobs depending on the industry across the country. This summer has been particularly gloomy for car sales in Canada however, USMCA will help bring back certainty, consumer confidence and alleviate the threat of auto tariffs. We forecast that this year’s sales will fall just off 2017’s record sale of two million vehicles.

I look forward to meeting dealers across the country to learn about their business and trends in the industry. I will be contributing thoughtful opinions in reviewing trending topics through an economic lens and I look forward to writing soon.

The post Meet CADA’s new economist appeared first on Canadian Auto Dealer.

For those of you have not heard the news (most of you), this will be my final column (rant) in this fine publication. After a decade as CADA’s Chief Economist, I will be this month, as the saying has it, pursuing other opportunities.

It has been a hell of a decade for me and, more importantly, the industry. If you’ll indulge me one final time, a little retrospective is in order.

I started this job in November 2008, which those of you with long memories and a love of pain will recall was the very month the downturn started in earnest in the Canadian car market.

For the first ten months of that fateful year, sales were tracking at a record level. Then November struck, I was hired by Rick Gauthier, and the bottom came out. In my native Newfoundland we would have said the arse went right out of it in November 2008. Have I mentioned I love my editors? In any event, I started the gig, and the industry went very nearly to hell. Draw from those two events in the same month what conclusions you will.

In my first week on the job I found myself on a media stage on Parliament Hill in Ottawa with Mr. Gauthier and Huw Williams, CADA’s long-serving director of public affairs and the Association’s vital connection to all things political and government-related. Rick did most of the talking as I tried my best to remain vertical under the intense lights of the national media, wondering (I hope silently) what series of decisions in life had led me to such a set of circumstances that day.

The result of that event and the advocacy push that came with it was a $12 billion dollar Canadian Secured Credit Facility to backstop automotive credit markets that had all but seized up when Lehman Brothers went the way of the dodo on Manhattan Island. For me it was an intense if exhilarating start to a job that has given me a PhD level course in an amazing industry in this country over the last decade.

The next year was the worst one in a long time for our members and many other sectors of our economy. Reeling from recession, we lost nearly 20 per cent of our sales in 2009, a huge shock for any sector. The only consolation, such as it was, was that it was not as bad as the Armageddon south of the border where U.S. dealers lost nearly half their sales almost overnight.

Since that challenging time, and the dealer consolidation that took place in its wake that was painful for many, things of course have been much more positive for the industry.

Last year marked our fifth straight record year for sales and the first ever two million market. This year we’re right on pace for a similar (if not quite another record) year. Even in the context of very slightly declining sales, revenues this year for dealers are up strongly as the consumer marches in ever-greater numbers from smaller to larger cars.

At the Association level, John White has been in the CEO chair for two and a half years now and is leading the organization to the next level in terms of growth and member services.

So I feel vindicated in leaving the industry in the state it’s in, especially after that inauspicious start all those years ago. Also, if I can’t take the credit for the booming sales we’ve seen in recent years, surely no blame for 2008 belongs to me either. Right?

For the writer, the greatest gift that readers can give is simple: to read.

If you are willing to devote the ten minutes of your day that it takes to read this, then that is no small victory for me, or any writer.

I am operating in a hyper-competitive market for clicks, time, and eyeballs.

If you’ve made it this far, chances are you’ll make it to the end, with a decent likelihood you have once or twice before over the past decade.

For giving me those ten precious minutes per month, I will be forever grateful, whether the piece had you nodding in agreement (doubtful) or rolling your eyes (almost certainly). Thank you, and goodbye.

(Editor’s note: We will miss Michael’s insights, clever writing style and entertaining presentations at various dealer events. The Canadian auto dealer team thanks him for his columns and wishes him the best in his new gig.)

The post Down the Hatch appeared first on Canadian Auto Dealer.

Tit-for-tat retaliation is not the right approach to battle Trump’s tariffs

Once again, our industry is being held hostage by perhaps the most unpredictable President ever to occupy the White House.

As of this writing, the U.S. Department of Commerce is conducting an investigation into the possible national security threat posed by automotive imports from allies, Canada among them. This justification is the only legal tool in the President’s kit to levy a tariff of up to 25 per cent on automotive imports into America, a remarkable act of self-harm the President seems intent on carrying out.

The notion that somehow, vehicles built in Canada and sold in the U.S. represent a national security threat to our neighbours is patently absurd and more than a little insulting.

Automotive trade between Canada and the U.S. is worth $140 billion per year. We made more than two million cars here last year, more than 80 per cent of which were destined for American dealers and consumers. We share the world’s longest undefended border and the richest bilateral trading relationship in history. The cars we build and send to the U.S. border are not tanks built for invasion and occupation. They are vehicles that American families depend on for their road trips, their grocery runs, their very way of life.

And yet. America looks poised to levy upon itself a tax in the tens of billions of dollars. This is what a tariff is: a cash levy on trade imposed by a government; a tax. Ultimately it will be paid by the U.S. consumer. If America for some reason sees fit to impose on itself this sort of cost for no reason at all, it’s very likely there is nothing that we or any other country can do about it.

What we can control is what we do by way of reaction. The rhetoric normally employed around such debates is that of the schoolyard bully, who will only back down in the face of equally harsh treatment. This entirely inappropriate metaphor has managed to warp the public debate on tariffs in such a manner that millions of Canadians are convinced that if America punches us, we have no choice but to punch back.

But America, in levying a tax on itself in the form of auto tariffs, is not punching us. It is punching itself. Yes, we will feel some pain. Our manufacturers will bear a significant burden. But nothing like the burden that will be felt by U.S. consumers. If the schoolyard bully is beating himself up, why on earth would we respond by doing the same thing?

But this is war, they will say. In a war, when you are attacked, you hit back. This is surely true. But a trade “war” is not an actual war. References to World War II and Hitler also often make appearances at this stage of the debate.

But the comparison is entirely irrelevant in the current context. Tariffs are akin to blowing up your cities in the hopes that the smoke will burn your enemies’ eyes. The war metaphor fails too. Trump’s tariff is a tax on American consumers. It is not the invasion of Poland. Declining the opportunity to levy a tax on ourselves just because someone else did is enlightened economic self-interest, not appeasement.

The reality we face is that tit-for-tat, dollar-for-dollar trade escalations with America in automotive is just not an option. It would be ruinous for the Canadian consumer and economy. Our government knows this.

There are other tools at its disposal, including tariff elimination from all non-U.S. countries to help wean us from our dependence on the elephant attached to our southern border.

We have our own giant tariffs in other sectors of the economy, the elimination of which would bring immediate relief to consumers, particularly low-income ones, and export-minded producers in those industries that currently lack access to overseas markets.

If Trump follows through on this threat, the politically “easy” thing to do would be to retaliate, because the public has been misled through the widespread use of the schoolyard bully bedtime story as it relates to trade disputes. But in trade, as in war, sometimes the easy thing is not the right thing.

The post Cooler heads must prevail in Canada appeared first on Canadian Auto Dealer.

Buckle your seatbelts. We are in for a bumpy ride with trade battles.

Perhaps it was inspired by the desire to appear “tough” ahead of his summit with the North Koreans.

Or maybe he really does believe that Canadians are the enemy and that we’ve been taking the Americans to the cleaners for decades with unfair trade practises.

It’s also possible that decades’ worth of experience and knowledge are all wrong and that Trump alone in his wisdom knows the true nature of our deceitfulness, and that it’s time to pay the price.

Whatever the reason, early June marked a turning point for a President increasingly frustrated at his thin record on the domestic front, and his lack of King-like power in policy debates. He’s turning his guns outward against us and America’s other key allies around the world, where presidents usually have more latitude to act unilaterally.

We may dismiss his ramblings as at odds with reality, and pretend that giant tariffs will never see the light of day. But we must now reckon with the reality that the U.S. President doesn’t care about the western order achieved with great pains over the past seven decades, and that has made us and America rich beyond our dreams.

Here in Canada, our chief worry is about the trading relationship, worth nearly $700 billion last year. Despite the President’s claims to the contrary (sometimes he says things that are
less-than-true), the U.S. “enjoyed” a surplus with Canada of more than $8 billion last year. Not that it matters. Whether trade between such countries as ours and theirs tips in “favour” of one or the other country from year to year means nothing.

What matters is the incalculable — but massive — economic benefits on both sides of the border in employment, investment, and consumer value represented by a trading relationship worth more than a third of our GDP.

Automotive trade represents more than 20 per cent of that total, around $140 billion per year that’s roughly balanced in both directions. Frustrated by stalled NAFTA talks, and lack of leverage to impose terms on all countries (manufacturers have said they would just pay the 2.5 per cent tariff instead of qualifying for tariff free under a NAFTA that imposed the content rules Trump was demanding), the Americans now threaten massive 25 per cent tariffs on auto imports. This is potentially a $35 billion dollar problem, and its negative effects would be difficult to imagine, on both sides of the border.

For auto manufacturing in Canada, the threat is near-existential, and consumers face the very real threat of massive cost increases at dealerships if anything like a 25 per cent tariff is allowed to stand.

For auto manufacturing in Canada, the threat is near-existential, and consumers face the very real threat of massive cost increases at dealerships if anything like a 25 per cent tariff is allowed to stand.

It’s difficult to see such a draconian scenario actually unfolding, but no longer impossible. There is a very strong pro-trade constituency in the U.S., in Congress and in many statehouses. But we are dealing with a President unmoved by the incentives that normally motivate political actors.

He has faced no consequences of note for years of norm-busting behavior, and a strong cohort of his base does believe that they are struggling economically because countries like Canada have taken advantage of decades of American good will. That it is not true simply doesn’t matter.

Any trade arrangement worth $700 billion per year will have some irritants. Lumber and dairy have long featured among lists of sins by both countries, eager to protect domestic producers from perceived treachery on the other side of the border.

If the President’s threats of catastrophic tariffs move us to liberalize our own dairy quotas that are long-passed their best-before dates, then all the better. Almost all Canadians are not dairy farmers, after all, and trade policy should be focused on maximizing value and utility for the many (i.e. consumers), and not delivering excess benefits to the few (producers).

If the Trudeau government can talk Trump off the ledge with some meaningful changes to our own approach on some key trade files, there’s an opportunity for a win-win.

But it’s a big ‘if’, and a very tight line for the government to have to walk with a President unlike any we’ve ever seen before.

The post Trump, tariffs and trade appeared first on Canadian Auto Dealer.

There’s lots of news to digest, but a Zero Emission Vehicle strategy will have long-lasting impact

The news can seem overwhelming sometimes.

It’s hard to know if there is in fact more “news” than ever these days, or if we just have access to and demand more of it. Either way, the torrent of information and issues is never ending, in business and in life.

Your correspondent recently presented to an industry gathering to discuss, among other things, the many political and policy issues facing the industry at the moment. The list was a long one. In included:

NAFTA; fuel economy rules; ever-shifting small business tax rules; new federal vehicle recall legislation; legal marijuana; and autonomous vehicle regulations.

In “normal” times, whatever those are, either one of these could have been considered a headline issue for the automotive industry in Canada. But they’re all happening at once, and none of them is the biggest potential challenge facing us in 2018.

For this year, on top of all these other things, we will be seeing a new national strategy on Zero Emission Vehicles (ZEVs) from the federal Minister of Transport Marc Garneau.

Happily for dealers, CADA has a very solid working relationship with Minister Garneau and his team that was forged from 2016 until earlier this year throughout the process on Bill S-2, the recall bill listed above.

We have been in regular contact with his team as they formulate a new federal ZEV strategy to be announced later this year. The 2018 strategy announcement was telegraphed last year, since which time much consultation has taken place between Transport Canada and the many stakeholder groups that will be impacted by the new national approach to encouraging greater ZEV proliferation.

All groups invited to take part in this process agree on some key issues. There is near-universal support for federal government involvement in expanding charging infrastructure for plug-in vehicles, since the current extreme lack of plug-ins hinders consumers’ ability to get very far with today’s battery-powered cars.

Today’s plug-ins and hybrids can easily tackle upwards of 90 per cent of today’s car rides, but consumers don’t know that to a large degree.

Government cash for expanding the charging network would help alleviate the chicken-and-egg problem we have today: few people buy ZEVs because there aren’t any chargers; there aren’t any chargers because few people buy ZEVs.

Some provinces have recognized this problem and are making their own investments in infrastructure, but a national approach is needed. Expect cash for charging stations to be a key plank of the federal strategy.

There has also been agreement between industry and environmental groups on the need to help educate the public on ZEVs and their potential role in tomorrow’s national fleet.

Right now, the awareness level among members of the public on the features offered by today’s ZEVs is very low.

For instance, “range anxiety” is becoming a thing of the past as alternative propulsion vehicles have extended their possible range in recent years to cover all but long road trips.

The reality is that the vast majority of single trips taken by Canadian vehicles is within a pretty tight radius of the home. Today’s plug-ins and hybrids can easily tackle upwards of 90 per cent of today’s car rides, but consumers don’t know that to a large degree.

A national ZEV strategy would do well to help educate the public that a ZEV could be a realistic option for a greater share of the market than today is the case.

Where industry participants and environmental groups diverged was on the question of the so-called ZEV mandate — a ZEV sales floor that would force consumers to buy a certain mix of vehicles.

The 2018 model year is the first under which the Quebec version of this ill-advised approach will be in effect in that province, despite the loud protests from dealers and manufacturers in the province for many years.

Precisely how the government plans to multiply ZEV demand more than four-fold overnight (from less than 1 per cent to this year’s target of 3.5 per cent) remains unclear, even a half year after 2018s started hitting dealership lots.

But it seems likely that effectively forcing consumers in the province to buy a mix of cars they would not otherwise demand will soon run up against the reality of a powerful market force in Quebec.

Translating that approach nationally would meet the same fate to an even greater degree since the rest of the country is well behind La Belle Province in current ZEV demand.

So, a busy year is before us on the policy front in automotive industry circles. Buckle up and enjoy the ride!

The post ZEV mandate will grab headlines appeared first on Canadian Auto Dealer.

Finance Minister Bill Morneau recently commented that his “number one priority” is enhancing Canada’s business competitiveness, particularly in the context of a recent overhaul of tax policy south of the border.

The timing of these comments is interesting, coming as they did just weeks after a federal budget that was roundly criticized for ignoring the elephant in the room of Canada’s dwindling competitive position in a fluid international economic policy landscape.

Morneau stresses he wants the time and the analysis to get it right, so let’s give him the benefit of the doubt. But for now, Canada is looking more and more like a nice place where big investments just don’t happen. We’re rolling the dice on some massive economic policy files. Let us all hope we don’t turn up snake eyes.

Start with taxes. Our average corporate rate is now around 27 per cent — higher than the average in advanced economies by around three points, and higher than the new U.S. average rate by a little less than that.

This is not a catastrophic position to be in, and certainly tax rates are not the only thing firms consider when making investments. But it is undeniable that the significant tax advantage we recently enjoyed over U.S. firms has evaporated with the American reform that passed last year.

This can only hurt our relative position vis-à-vis our most important trading partner, already a more attractive magnet for talent and investment than us in many other ways.

Second, trade. Renegotiations of NAFTA are ongoing (and could, with luck, be over by the time you read this!). But as of this writing, a positive outcome was far from a certainty.

The government does deserve credit on this file, negotiating as they are with rank protectionists and U.S. leadership with a suspicious view of the outside world and a zero-sum approach to trade.

But what’s the plan if NAFTA collapses? Trade diversification is to be applauded, but we can’t get a pipeline built to salt water to market Alberta oil to Asia, and we will always be bound by geography and culture to America.

For the most part the government is playing a challenging hand very well on NAFTA, but a catastrophic outcome is still very much a possibility, despite recent noises that talks are moving in the right direction.

This will further strain public finances, as most governments have not managed to balance their books even in the relatively good times of the past couple of years.

Even in the absence of a full-scale collapse, the very possibility of it and the uncertainty caused by ongoing talks are already having a negative impact.

How about economic growth? After a bumper year from around mid-2016 to the middle of last year with growth in excess of three per cent, the Bank of Canada is forecasting growth to come back down below two per cent this year and next.

This will further strain public finances, as most governments have not managed to balance their books even in the relatively good times of the past couple of years.

What happens when the next recession comes, as it inevitably will? We are almost a decade removed from the last serious downturn and history shows that we are very likely closer to the next recession than the last one. Are we prepared for it?

Investment is another area of concern. Non-residential business investment was a decent $205 billion last year, up a little from 2016 but still well below the record $236-billion companies spent in 2014. Canada’s foreign direct investment also dropped last year to its lowest level since 2010.

The new Infrastructure Bank, announced with great fanfare in the 2017 federal budget, still does not have a permanent CEO and may not spend any money until next year.

The Prime Minister so far has generated more sock-related headlines than signed cheques with his frequent elbow-rubbing with the international billionaire glitterati set. Canada is no doubt respected around the world for many reasons. But most of the deep pockets are putting their money elsewhere, for now.

Of course, it’s not all doom and gloom. We still live in one of the richest countries ever to exist, and our politics have avoided the terrifying turn to populism and poisonous tribalism we see all around us. These are no small things.

Seeing an opportunity in a wall-building, travel-banning America, we are opening our country ever-more to the kinds of highly skilled immigrants we will need in the decades to come to finance the demographic tsunami we are facing.

So Canada’s ok. But we could be better. Let’s keep trying.

The post Mixed outlook amidst uncertainty appeared first on Canadian Auto Dealer.

It might be better than cumbersome regulatory action to curb emissions

I’ve written in this space before about carbon taxes, as they become a common policy tool in more and more jurisdictions in Canada and elsewhere.

Since the federal government announced its plans in this area about a year and a half ago, the provinces that don’t already have “carbon pricing” regimes (as the euphemism would have it) have been mostly busy falling in line with the nationally-set price floor.

That floor will come into effect next year at the very modest level of $10 per tonne, but will increase each year thereafter until it hits $50 per tonne in 2023. Even at this level, it’s not likely to curb behaviour enough to have a dramatic impact on emissions, but it will contribute to our global green goals in its own way.

It is often assumed that a meaningful carbon tax will be bad news for the industry, but this does not have to be the case. In fact, a higher carbon tax could be good news for automakers and dealers, if it is coupled with a lighter reliance on industry-specific (and relatively costly and inefficient) regulation aimed at lowering emissions. Our industry has been a popular target for such regulations in recent years, to the significant cost of OEMs, dealers and consumers.

At its $50 per tonne level in 2023, the tax will add a little more than a dime to the price of a liter of gasoline. Even doubling the tax to $100 per tonne (a level which would start to take a serious bite out of emissions) would add less than a quarter to the price of a liter of gasoline.

Certainly this is enough for consumers to notice at the pump, but if the tax is properly designed those same consumers will see a corresponding jump in their paycheques. A carbon tax at that level will generate billions of dollars of revenue which provinces will be free to use as they see fit. Many will use it to substantially lower provincial income taxes.

It’s a brave politician that will impose a 10 or 20-cent hike in gasoline prices, but technology and the gradual implementation of the tax will soften the blow.

It is often assumed that a meaningful carbon tax will be bad news for the industry, but this does not have to be the case.

First, as we all know, gasoline prices are fairly volatile. Between 1997 and 2017, average prices increased from around 98 cents to $1.15 per liter (all prices adjusted for inflation), but within that two-decade period there was significant volatility.

When the price of oil skyrocketed in the middle part of the first decade of this century, gas prices also soared, hitting $2.00 in some cases. Surely, a 10-to-20 cent increase imposed over the next decade will be barely noticeable in the context of such volatility.

Also, new vehicles continue to get more and more mileage out of a tank, a technological process that will continue and perhaps even accelerate in the years to come.

Even as the national fleet continues to grow, we recently experienced a first in history: a decline in the amount of fuel consumed by Canadians.

This is not because people all of a sudden started driving less. It’s because years of fuel economy enhancements are finally starting to bend the curve of consumption even in the context of more cars driving more kilometers. This will take some of the edge off any pump price hikes in future due to a carbon levy.

And a carbon tax in the longer run could be good news for the industry. The levy is near-universally accepted by economists as the most efficient and market-oriented policy tool to reduce emissions, as opposed to regulations such as fuel economy rules and industry-specific pollution caps aimed at other sectors.

If governments come to realize this in the years to come as carbon taxes cover more and more economic activity, it is possible they will realize that increased carbon levies can be paired with reduced regulation, which has always been a very costly way to reduce emissions, in our own sector increasing the price of vehicles by substantial sums.

So don’t fear the carbon tax, but help to ensure it is implemented in as efficient a manner as possible.

Pressure provincial and federal political leaders to make any carbon tax truly revenue-neutral through dollar-for-dollar reductions in income taxes, and as it increases over time to pair it with a corresponding reduction in costly, inefficient industry-specific regulations.

The post Don’t fear the carbon tax appeared first on Canadian Auto Dealer.

A look back at the year that was and a glance ahead to 2018

Welcome to a new year!

First, the bad news: there’s a good chance we’ve started the first year in six that won’t set (yet) another new record for new vehicle sales in Canada.

Though the economy has been on a very hot streak in recent quarters, it’s difficult to predict vehicle sales will continue to outpace growth year after year, particularly given our first two million market in 2017.

If you accept, as most do, that we cannot possibly set a new record every year, then it follows that one year, likely soon, sales will decrease. But whether we’re up a half point or down a point this year versus last, the industry remains in a very strong position heading into a new year.

Potentially bad news out of the way, the rest of the column should help your January blues with some happier content.

Though November and December were ever-so-slightly down in terms of monthly year-over-year sales to close out the year, we did indeed comfortably break the two million threshold last year.

This represents the fifth consecutive year of record new vehicle sales in Canada, with consumers continuing to take advantage of the incredible value proposition in our industry today. Dealer revenues, at close to $120 billion, grew even faster than sales as consumers increasingly opted for trucks and SUVs versus cars, which continue their years-long slide down the sales ladder.

The final quarter of the year saw what can only be described as a jobs boom, with 80,000 positions added to payrolls in November alone. This brought the unemployment rate down to below six per cent for the first time in almost a decade.

Of course, the jobs market is tightly correlated to the vehicle market: if you have a job, usually, you need a car to get to it. If you need a car, you need a job to pay for it. No surprise, then, that record job numbers went hand in hand with record car sales in 2017.

But whether we’re up a half point or down a point this year versus last, the industry remains in a very strong position heading into a new year.

That said, job growth is what’s known as a “lagging indicator.” That would be econ-speak for something that happens after the fact. The 80,000 jobs that were created in November, for example, were mostly a result of what happened to those firms from, say, August to October, and less of what those firms expected to happen in December and beyond.

Of course there are exceptions to this — such as retailers jobbing up ahead of Christmas — but for the most part, strong job creation is a manifestation of what happened in the past as opposed to what is expected in the future.

Low unemployment is also usually associated with higher inflation and interest rates, which could put a damper on a finance-heavy industry like autos. However as yet, long-expected higher inflation does not seem to be on the horizon.

Though job growth has been strong, overall economic growth has been modest (+1.7 per cent in Q3). The Bank of Canada is also cognizant of tighter federal rules around mortgages in its interest rate decisions, and will therefore approach its policy with caution this year absent an unexpected inflation spike.

Monetary policy matters, as does government policy. Though it has not yet moved into the space actively, the federal government is increasingly aware of the trend towards ultra-long amortization in the auto industry.

It is also very concerned about deepening levels of consumer debt. We have seen multiple moves from the federal government on housing finance in the past decade, so they are not shy about regulating. I don’t predict any action on finance regulation this year, but it is always a possibility simmering on the back burner of the industry.

In the end, all the fundamentals that have brought us to two million remain in place this year.

I offer no predictions on where we will land in 2018, but if we dip slightly below two million this year, we will still be in a very healthy place. Regardless of sales numbers, revenues are almost certain to increase again, as consumers opt for larger and pricier vehicles still in 2018. Let the good times roll.

The post Let the good times roll appeared first on Canadian Auto Dealer.

In the middle of summer, when much of the country was in vacation mode, Federal Finance Minister Bill Morneau dropped a set of corporate and small business tax proposals that has since sent Canada’s business community into a level of activity and outrage few have seen before.

High-profile small business advocates in Ottawa have observed that they have never seen the likes of the negative reaction that has accompanied these proposals, and the rhetoric employed by the Minister in their defense has many small business owners claiming the government is disconnected from the realities faced by Canada’s job creators.

The changes are highly technical in nature but amount to crackdowns in three areas the government sees as ripe with tax avoidance “loopholes” used mainly, the government claims, by wealthy Canadians.

Proposed changes include a crackdown on income sprinkling, tax hikes on passive investments in a private corporation and changes to rules when converting corporate income into capital gains.

These proposed tax changes could make it difficult for companies to invest in future growth, plan for expansion or retirement if implemented as initially proposed.

While few will take issue with the notion that small business owners should not be able to pay family members for doing nothing productive for the firm (the ostensible motivation for the income sprinkling move), changes to the tax treatment of passive income earned inside a corporation will be met with further vociferous opposition by business owners unless the government backs down on that particular provision.

Furthermore, rhetoric that paints small business owners as a group of tax-avoiding one-percenters is adding fuel to the fire of opposition to these proposals. The backgrounds of the Prime Minister and his Finance Minister may explain this problem. The Prime Minister himself has claimed multiple times that many small businesses are set up not to pursue a productive economic idea, but to shelter income from high personal tax rates. His Finance Minister has echoed this sentiment.

While there are undoubtedly some questionable incorporations that take place under Canadian tax law, the overwhelming majority of small businesses are just that: small firms whose principals put in thousands of hours of sweat equity and often risk everything to build a profitable enterprise and to create livelihoods for their employees.

Incorporations that take place merely for “tax planning” do so due to the huge spread between top personal tax rates and corporate tax rates, a spread that is only growing as governments continually ask high earners to “pay a little more.”

Proposed changes include a crackdown on income sprinkling, tax hikes on passive investments in a private corporation and changes to rules when converting corporate income into capital gains.

Finance Minister Morneau comes from what can charitably be referred to as the economic elite of Canada’s largest city.

The circles in which he spends his time include some very high-income people indeed, many of whom have undoubtedly personally incorporated to monetize the spread between personal and corporate tax rates.

But the Finance Minister’s personal experience is not in any way representative of Canada’s small business community. These mistaken perceptions are, however, driving policy decisions out of the Finance and Prime Ministers’ offices.

Dealerships and other small firms need to be able to allocate a portion of profits for future capital expenditure, to finance leaner years, to plan and invest for the future, and to save for retirement.

Dealers, for example, operate large physical infrastructure in constant need of maintenance and updates.

A new roof will cost the average store hundreds of thousands of dollars. If tax hikes discourage the saving required to finance these regular business expenses and capital investments, firms will be less inclined to make the investments or will go into debt in order to finance them.

If within-corporation savings are taxed at the top personal rate of income tax instead of the current small business rate, business owners will be incentivized to withdraw the funds instead of saving them inside the corporation to finance future growth and investment.

These tax measures treat the symptoms and not the cause of “tax planning” within corporations.

The cause is the wide spread between top personal rates and small business rates, a spread widened by this Finance Minister in his first budget.

Furthermore, they are damaging to the business investment and long-term planning that is urgently needed to grow the economy.

Dealers and all small businesses will hope that the Minister hears their feedback, and changes the most damaging of these proposals accordingly.

The post Government out of touch on small business tax changes appeared first on Canadian Auto Dealer.

With a new United States trade representative confirmed with a strong bipartisan majority in Washington, it is expected that a major renegotiation of the North American Free Trade Agreement (NAFTA) will take place later in 2017.

President Trump campaigned on the need to tear up the deal, calling it the worst trade deal in history for U.S. workers and consumers.

While he has changed his tune somewhat since taking office, his most recent comments indicate his desire to change NAFTA in fundamental ways.

Canada appears to be ready for the onslaught, having spent months on bilateral discussions with major players in Washington from the Prime Minister’s office all the way through committees of Parliament and relevant departments.

So will Trump explode NAFTA, sending Canada’s economy into a tailspin? Unlikely. But with this president, anything is possible.

The new U.S. trade representative, Robert Lighthizer, is not known for his strongly pro-NAFTA views. It should not come as surprise that Trump has appointed someone to this position that shares his skepticism regarding the benefits accrued to the U.S. through its many trade deals, NAFTA included.

For his part, Prime Minister Trudeau has made encouraging noises about the need to “modernize” NAFTA, dealing as the rest of the world is with the reality of the Trump administration in Washington, and in the case of NAFTA, the President’s need to accomplish at least something he can sell his supporters on trade.

For Canadians fearing the unilateral American destruction of a trade deal that has massively benefited our own consumers and firms for 25 years, there are powerful forces working in our favour.

While President Trump has shown he is to be underestimated at one’s peril, his leadership style is providing near-daily reminders that getting big things done in Washington is not easy at the calmest of times. And this is not the calmest of times.

More than $2 billion crosses the border every day and untold hundreds of thousands — or more — jobs on each side of the border owe their existence to the trade that exists between the two countries

Short of pulling out of NAFTA altogether — the so-called “nuclear option” some argue is within the President’s executive powers — whatever renegotiation that takes place with Canada and Mexico will have to pass muster with Congress.

The notion that the U.S. House of Representatives and Senate will pass a bill that guts or destroys NAFTA — on which the economies of so many U.S. States depends — is a stretch that is almost certainly beyond the still-unproven legislating skills of the current White House.

The Republicans may have a rare window of unified government under their control, but the reality on the ground is that Canada is the number one trading partner for 35 out of 50 States, and a close second for many of the other 15.

More than $2 billion crosses the border every day and untold hundreds of thousands — or more — jobs on each side of the border owe their existence to the trade that exists between the two countries.

In the automotive industry, it is a well-used talking point that a part can cross the border multiple times in various formats before its final installation into a finished product in Canada or the United States.

And as for the final product, the vast majority of Canadian automotive production heads south of the border for U.S. consumers, and hundreds of thousands of American-built cars come to Canada each year too. Any new deal that impedes or threatens that two-way flow will hit consumers and workers in both countries very hard.

So Canada must prepare for the worst and hope for the best on NAFTA, while continuing the quiet work of bringing key U.S. legislators on side with regards to the upcoming renegotiation. And in the final accounting, the most likely scenario is probably a set of not-insignificant changes to the deal that leaves the essential quality of it intact.

Canada could offer “concessions” that have long-irritated U.S. trade negotiators in areas such as lumber and dairy, which themselves would offer great benefits to Canadian consumers. President Trump could legitimately tell his supporters he got a better deal out of NAFTA, and that $2 billion of daily business could carry on as it has for decades.

The post Anything is possible with Trump and NAFTA deal appeared first on Canadian Auto Dealer.

There’s good reason to fear for NAFTA’s future, but better reason to let those fears go

With a new United States trade representative confirmed through a strong bipartisan majority in Washington, it is expected that a major renegotiation of the North American Free Trade Agreement (NAFTA) will take place later in 2017.

President Trump campaigned on the need to tear up the deal, calling it the worst trade deal in history for U.S. workers and consumers.

While he has changed his tune somewhat since taking office, his most recent comments indicate his desire to change NAFTA in fundamental ways.

Canada appears to be ready for the onslaught, having spent months on bilateral discussions with major players in Washington, from the Prime Minister’s office all the way through committees of Parliament and relevant departments.

So will Trump decimate NAFTA, sending Canada’s economy into a tailspin?

Unlikely.

But with this President, anything is possible.

The new U.S. Trade Representative, Robert Lighthizer, is not known for his strongly pro-NAFTA views.

It should not come as a surprise that Trump has appointed someone to this position that shares his skepticism regarding the benefits accrued to the U.S. through its many trade deals, NAFTA included.

For his part, Prime Minister Trudeau has made encouraging noises about the need to “modernize” NAFTA, dealing as the rest of the world is with the reality of the Trump administration in Washington.

For Canadians fearing the unilateral American destruction of a trade deal that has massively benefited our own consumers and firms for 25 years, there are powerful forces working in our favour.

While President Trump has shown he is to be underestimated at one’s peril, his leadership style is providing near-daily reminders that getting big things done in Washington is not easy at the calmest of times.

And this is not the calmest of times.

Short of pulling out of NAFTA altogether — the so-called “nuclear option” some argue, is within the president’s executive powers — any renegotiation that takes place with Canada and Mexico will have to pass muster with Congress.

The notion that the U.S. House of Representatives and Senate will pass a bill that guts or destroys NAFTA — on which the economies of so many U.S. states depend — is a stretch that is almost certainly beyond the still-unproven legislating skills of the current White House.

The Republicans may currently have a rare window of unified government under their control.

But the reality on the ground is that Canada is the number one trading partner for 35 out of 50 States, and a close second for many of the remaining 15.

More than $2 billion crosses the border every day and hundreds of thousands — or more — of jobs on each side of the border owe their existence to the trade conducted between the two countries.

In the automotive industry, it is a well-used talking point that a part can cross the border multiple times in various formats before its final installation into a finished product in Canada or the United States.

And as for the final product, the vast majority of Canadian automotive production heads south of the border for U.S. consumers — hundreds of thousands of American-built cars come to Canada each year too.

Any new deal that impedes or threatens that two-way flow will hit consumers and workers in both countries very hard.

So Canada must prepare for the worst and hope for the best on NAFTA, while continuing the quiet work of bringing key U.S. legislators on side with regards to the upcoming renegotiation.

In the final accounting, the most likely scenario is probably a set of not so-insignificant changes to the deal that leaves its essential quality intact.

Canada could offer “concessions” that have long-irritated U.S. trade negotiators in areas such as lumber and dairy, which themselves would offer great benefits to Canadian consumers.

President Trump could legitimately tell his supporters he got a better deal out of NAFTA — with that, $2 billion of daily business could carry on as it has for decades.

The post Trading realities appeared first on Canadian Auto Dealer.

Seen for centuries as the specter of joblessness, automation actually fills more gaps than it creates

There has been much hand-wringing of late about the state of the labour market in today’s New Age of Automation.

Robots, it is said, are poised to steal all of our jobs and lead to mass unemployment.

No less an authority than our own prime minister frequently opines that we stand on the cusp of an age of mass-automation that will render humans entirely redundant.

So are we all doomed to perpetual unemployment and penury at the meticulously-crafted hands of robots? I doubt it.

Like grey-hairs moaning the state of kids today, fears of job-killing robot armies have been around for generations.

The most famous example are the Luddites, 19th-century textile labourers who protested technological advancement by destroying the looms that were displacing their work. Today, the term “Luddite” is a pejorative label placed on one who either refuses or just can’t understand how to navigate the contemporary digital landscape.

Automation has been happening for centuries. It is as old as technological progress itself, which has accelerated greatly in the past two centuries but has been evolving for millennia.

To bring it closer to the present day, as recently as the 1920s, farming was the single biggest employer in Canada. There were more than a million people toiling in the fields, one third of the entire labour force, and they made Canada a food-exporting powerhouse.

Fast-forward to the present day and agriculture represents less than two per cent of jobs in Canada, and that number is falling.

What has precipitated this epic collapse in farming jobs? Automation, in the form of machines that can complete the work of dozens of human employees in a fraction of the time.

That is why a few hundred thousand farm workers today can produce many times the amount of food that over a million yielded a century ago.

And yet, in the near-century since those heady days of farm work in Canada, the total employment rate — the share of working-age people that are actually working — has
only increased.

In the 1920s, most of the jobs that exist today had not even been contemplated. Computer programmers, commercial airline pilots, NASA engineers, installers of broadband and Uber drivers did not exist in the imaginations of the most creative futurists a century ago.

The same principle is true today: a hundred years from now our grandkids and great-grandkids will be paying the bills by completing tasks we cannot even imagine today.

Robots and other machines, having taken over all the boring and dangerous tasks traditionally done by human workers, will free us to conjure and create millions of jobs that today are imponderable.

Automation creates as many jobs as it destroys, or more; yes, robots now assemble more cars and washing machines than human hands.

But someone has to design, build, and maintain those robots. ATMs dispense cash, but bank employment is higher than ever. The people that work there no longer hand out banknotes but advice and mortgages, and other products and services ill-suited to the “skills” of machines.

Certainly, increased technological progress and automation creates disruption, and many workers are displaced in certain industries.

For those individuals the disruption can be painful, and there is a role for government to ease the process through unemployment benefits, retraining, and other policies to help those that are directly impacted by technology.

Many of the farm workers of the 1920s had to endure the economic hellscape of the 1930s before finding work again, an undeniably painful process.

And today, there are few attractive options for a 50-something who since his teens has worked in a factory with few other marketable skills. For those individuals, society, enriched as it is at the macro level by technological progress, should offer robust support.

Technological progress and, yes, automation, have brought to billions of people goods, services, and experiences not available to the richest Kings of Europe two centuries ago.

It should not be feared and resisted, but encouraged and embraced.

The post Looming concerns appeared first on Canadian Auto Dealer.