TD Bank Predicts Significant Decline in Canadian Automotive Sales for 2026
Canadian car sales are projected to fall from their post-pandemic peak as the nation grapples with economic challenges and uncertainty surrounding trade relations with the United States, according to a comprehensive report from Toronto-Dominion Bank.
Substantial Sales Drop Expected
The financial institution forecasts that vehicle sales could decline by as much as 4.6 percent this year, dropping to approximately 1.9 million units. This represents a significant reversal from the strong performance witnessed in 2025, when sales climbed to about two million vehicles.
The 2025 surge was largely attributed to easing interest rates that helped stimulate pent-up consumer demand. However, monthly demand cooled considerably after a robust start as Canadian consumers rushed to make purchases before anticipated U.S. tariffs took effect.
Multiple Factors Driving the Downturn
TD Bank identifies several key factors contributing to the projected decline:
- Trade uncertainty surrounding the upcoming review of the Canada-U.S.-Mexico Agreement
- Economic headwinds affecting consumer confidence and purchasing power
- Affordability concerns with monthly car payments averaging around $1,000
- Reduced immigration levels impacting market demand
"Looking to 2026, elevated trade uncertainty is likely to continue to weigh on the industry as the first review of the Canada-U.S.-Mexico Agreement takes place," TD stated in their report. "The process promises to be extensive, with the U.S. likely to seek material revisions to be made within or as an accessory to the agreement."
Production Challenges and Tariff Impacts
The automotive industry faces additional challenges beyond declining sales. Vehicle production in Canada has already stalled, with a 5.4 percent decline representing the largest drop among the three North American nations.
Canadian vehicles effectively face a 15 to 20 percent tariff rate when exporting to the United States, as only non-CUSMA-compliant exports encounter the full 25 percent tariff. Nevertheless, this remains substantially higher than what other major vehicle exporters, including South Korea, Japan, and the European Union, currently face.
To circumvent these tariffs, several automakers have begun shifting production to the United States. General Motors Co. is among those making such adjustments, and TD projects this trend will result in an additional four percent production decline among Canadian auto plants in 2026.
CUSMA Review Looms Large
Many of TD's projections hinge on the impending review of the Canada-U.S.-Mexico Agreement scheduled for July 1. According to Bloomberg News, U.S. President Donald Trump has privately considered terminating the agreement entirely, adding further uncertainty to the situation.
"Losing CUSMA would have significant consequences for Canada and the North American auto industry," TD warned in their analysis. "But the prospect of extended negotiations could also yield improved trade relations as well."
The bank emphasized that while the Canadian automotive industry managed to withstand elevated trade tensions with its largest trading partner relatively well in 2025, headwinds are intensifying as tariffs take greater effect. TD suggests that diversifying automotive trade away from its current heavy reliance on the U.S. market may become necessary to ensure the industry's long-term viability amid growing American protectionism.
Interest rates are expected to remain relatively stable for most of the year, but affordability concerns combined with reduced immigration levels are anticipated to continue dragging the market downward throughout 2026.
