2012 HAS BEEN A GOOD YEAR, BUT COULD 2013 SHAPE UP TO BE BETTER STILL?
Perhaps by the time you read this you won’t even have brought back the empties from your New Year’s Eve party. Twenty-twelve and all of its ups and downs are still very fresh in our minds and yet here we are, at the beginning of a new year. Welcome to 2013, only two years away from the distant era envisioned with optimism and suspicion by Michael J. Fox in the Back to the Future trilogy.
This time of year naturally brings with it reflections on the recent past and more-curious-than normal wonderings about what the future will hold. Though as of writing of this column 2012 hadn’t quite yet been put to bed, it is easy to look back on the issues and challenges that characterized last year and to what degree they will continue and evolve for the year to come.
A GOOD YEAR
Last year, simply put, was an excellent one for new car dealers in Canada. As of this writing we were well on our way to a new record sales year, comfortably in excess of 1.7 million new vehicles sold, a solid seven per cent jump over 2011, which itself was a year of modest, yet solid growth. Looking at the retail auto market through the lens of year-over-year growth, it was easy to be very happy with how things played out last year.
However, put another way, last year’s sales results only got us back to our previous sales high which was reached in 2002. In pure sales terms we have seen flat new car demand over the past decade, a time period in which the economy and population have both grown by large amounts. Seven per cent growth from 2011 to 2012 is great. Zero per cent growth from 2002-2012 is not so awesome.
What can we expect this year? As always, our economic performance will hinge on a set of variables that can be roughly divided into two camps: those over which we have some control, and those over which we have none.
In the latter camp is the single biggest variable that determines our economic fate: what happens in the United States. It is likely that a deal will be reached and that the misnamed “fiscal cliff” will be averted, but it is far from guaranteed. If it is not avoided the economy will not self destruct in the new year, but there will certainly be consequences. Anything that derails what in recent months has been a genuinely decent American recovery will have an impact in Canada.
Under the same category of events wholly beyond our control is the continuation of slow-motion catastrophe playing out in Europe. Greece is insolvent and presumably, 2013 will be the year the European Union stops kicking the can down the road in the hopes somehow everything will work out and actually confronts the bankruptcy of one of its members with decisive action. That country will require a major debt restructuring (that is, partial default) and many of its bigger and more dangerous European peers will need to bring in painful reforms to restore the continent to competitiveness. If they fail, then so will much of the European experiment, and that presents an enormous challenge to us all.
GREATER FLEXIBILITY
Happily, many things are within our control, namely how we run our own businesses and how the government sets the macroeconomic framework. The federal government’s announcement that it would bring some flexibility to its fiscal plans over the next few years was most welcome. Pursuing a balanced budget to the detriment of all other goals (such as growth, employment, and equity) is wrong. Delaying the year in which the budget turns from red to black by a year or even two or three will make no difference in the long term and in the short term could provide the boost we need to employment and demand. That the government has proven flexible on one of its main policy planks — the return to a balanced budget — is very good news.
We’re in for another year of modest growth in the economy at large just like 2012. But also like last year there exists the potential for an upside surprise on the all-important indicator of new vehicle demand. Consumers are regaining confidence; there is still pent-up demand from the recession; financing is as accessible as it has ever been; Canada is still a massive country. All of these things — and others — mean that as we weigh the pros and cons facing us in 2013, we should look upon the year to come with the quiet confidence for which we are famous.
Happy New Year!
