Finally, we are seeing some action on restarting the economy! The various levels of government are taking a very cautious approach, as they should, in allowing more businesses to open, albeit on a restricted basis and with significant protocols in place to ensure the safety of customers and employees alike.
I’m firmly in the corner that it is time to loosen the constraints and get people back to work as long as it’s in a controlled and secure manner. I think it is safe to say that the vast majority of people get the social distancing concept and will be able to shop and stay safe at the same time.
This equally applies to the purchase of a new vehicle. As more and more jurisdictions across the country are allowing car dealerships to open their sales departments, dealers now have to figure out how to make it happen. I’m sure that most dealers have already thought about how to rearrange their dealerships to allow social distancing and have processes in place however the reality of the just HOW to sell a car to someone when in-store activities are so severely restricted is another story altogether.
A vehicle purchase is a big deal for most people and can be a very emotional exercise for some. Almost every buyer wants a deep personal interaction as part of the experience and now that collaboration needs to happen in a different way.
The number of customers allowed in-store and the nature of face-to-face interactions will have to dramatically change and therefore sales strategies need to change as well. The good news is that the tools are available and can be very effective.
The bad news is in the past few dealers embraced the idea of leveraging technology to interact with prospects and now must scramble to train sales staff on effective ways to engage purchasers and enhance their desire to buy a vehicle. We have known for a long time that almost all consumers are using the Internet in some way as part of their car-buying journey.
Some are simply doing research; some are deploying the build capabilities; and a few are completing virtually the entire transaction online. A dealer should assume that every customer is an online customer.
They may end up darkening the dealership doorway but, in all likelihood, they have narrowed their decision to a couple of choices and now want to physically explore the cars before making the final decision. Showroom visits had dropped dramatically even before coronavirus. Years ago, it wasn’t inconceivable to see 10 or 12 dealerships as part of the car-buying process.
Recently that number had dropped to two or three and now it may drop even further. Consumers want and expect to do most of their research online and I believe that the scale has tipped and more and more actual purchase activities will occur from the kitchen table. And do not believe for a minute that this is a short-term phenomenon and that things will go back to the way they were before. Almost nothing in our lives will go back to the pre-COVID-19 normal. We have a new normal and that normal involves even more use of technology.
This is not an all bad news story and it is never too late to get on board and embrace new sales methodologies. I fully understand that over the last number of years dealers have been inundated with different types of new software that promise to revolutionize the way to do business and significant choices needed to be made on where to invest. And now there is tremendous pressure to return the business to a sustainable profit level. The new sales experience is one area that can no longer ignored, and a commitment must be made. It is a shift in mindset.
Equally, an online sales process tool or platform is a critical investment that is required to allow for prospect interaction and eventual sale completion. Do not look at this as an expense, look at it as a revenue generating tool. Once it is are up and running the payback will be huge. And don’t scrimp on the training! Training will allow for a better understanding of the attributes of the platform and how to leverage its power effectively.
There are incredible benefits in embracing technology and by leveraging an interactive tool as part of the sale process you can embed significant efficiencies in the workflow. The sales associate can be working with multiple customers at the same time, the sales cycle will be reduced as all information will be current and at everyone’s fingertips and it opens the opportunity to introduce the prospect to other complimentary and profitable products such as extended warranties and appearance packages.
Most of the platforms also have tracking tools included which make it very easy to track activity in real time. A dealer will have a detailed sense of the sales pipeline which will make things like inventory management and performance monitoring so much easier. The whiteboard in the sales manager’s office may be a good visual and perhaps a motivator but the real operational efficiencies come from having real-time data available 24/7.
We are living in a very scary time with loads of uncertainty, but there is a silver lining.
This pandemic and our response to it has forced all of us to rethink how we get things done and, whether we like it or not, provided the opportunity for most of us to get out of our comfort zone.
In this case, the investment in a new online sales platform now will provide years of return in an environment that isn’t going away. Take advantage of the situation and turn it into a positive! The new normal is going to be okay.
Jeffrey Fallowfield is Senior Executive Consultant at PerformanceSpark.
Along with updating its most likely and severe recession scenarios for how wholesale prices might perform, Canadian Black Book began its latest COVID-19 update with what analysts declared to be “good news.”
Canadian Black Book highlighted on Monday that those positive developments stemmed from what’s now happening in provinces like Ontario and Quebec.
“While there certainly will be many new precautions, restrictions and processes in place to protect everyone in this new normal, for the first time in quite a while, dealers in Ontario and Quebec (outside of metro Montreal) are open for sales,” Canadian Black Book analysts said in their newest update.
They pointed out that greater Montreal-area dealers will be able to re-open their sales showrooms on May 18. Canadian Black Book estimated those two provinces represent approximately 65% of new-vehicle sales in Canada.
“In our business, everything stops and starts with auto retailers. And with the sales lights back on, this signals the start of a recovery for our industry,” analysts said.
Canadian Black Book continued by mentioning some positive developments involving wholesale market activity in Canada, too.
“There are now consistent positive patterns emerging nationwide. The sale rates at auctions are improving dramatically, since bottoming out over the last several weeks,” analysts said of conversion rates improving from below 10% to above 50%.
“That said, we still believe that buyers and sellers are not on the same page when it comes to pricing. However, we do expect there will be more agreement in the market in the coming weeks regarding true prices in this volatile market,” analysts went on to say.
At this juncture, the upbeat developments contained in Canadian Black Book’s latest COVID-19 update ended.
Analysts noted information from Statistics Canada that showed the unemployment rate rose 5.2 percentage points to 13.0% in April. The rise came after the increase of 2.2 percentage points in March.
Canadian Black Book recapped that the April unemployment rate was the second-highest level ever, trailing only to the 13.1% reading observed in December 1982.
“It should be noted that the April unemployment rate would be a staggering 17.8% when adjusted to reflect those who were not counted as unemployed for reasons specific to the COVID-19 economic shutdown,” analysts said.
“After the COVID-19 crisis is resolved from a public health standpoint, the lingering effects will be the recession this virus will leave in its wake,” analysts continued. “With record-high unemployment and rock-bottom consumer confidence, there will be a pronounced temporary change in behavior for vehicle consumers.
“Some, but of course not all, will rethink or postpone their vehicle purchases, which will result in the expected decline that analysts, including Canadian Black Book, predict,” they went on to say.
And speaking of predictions, Canadian Black Book also refreshed its industry outlook for wholesale prices, beginning with its most likely scenario.
Analysts projected a drop in wholesale prices by 17% for 1- to 6-year-old vehicles compared to a pre-virus baseline arriving during the third and fourth quarters as the economy starts to recover from the effect of COVID-19. That overall decline includes an 18% decrease for SUVs, vans and light trucks and a 15% drop-off for cars.
Looking ahead 36 months, Canadian Black Book said, “The effect of the pandemic will be felt, but we project that values will return to close to pre-virus levels with only a small impact on wholesale values.
Analysts added their residual value forecast will drop by 4% to 0% (meaning no negative adjustment), depending on the term of the residual and the vehicle segment.
Finally, Canadian Black Book closed with its severe recession scenario, which analysts said would be created by a “prolonged social separation policy due to COVID-19 that stretches into late summer and early fall.
“This scenario could also be brought on by a prolonged feeling of insecurity by consumers,” analysts went on to say about the likelihood of a deep recession that would result in a 40% drop in new-vehicle sales in 2020 to 1.149 million units
Under that dire scenario, Canadian Black Book predicted a 25% drop in wholesale prices of 1- to 6-year-old vehicles compared to a pre-virus baseline. That figure stems from a 26% decline for SUVs and light trucks and a 22% drop for cars.
Considering the market 36 months from now, analysts expect the effect of the pandemic and resulting recession will still be felt, project a 10% market level decline of wholesale prices compared to pre-virus projections.
It was a strong start to 2020 for the Canadian used-car industry.
But as the impact of COVID-19 took hold in March, the first quarter ended up softer than the year-ago period.
In fact, there was a 1.5% year-over-year dip in the number of retail used vehicles funded through Cox Automotive Canada’s Dealertrack Online Credit Application Network, according to data from the company.
Specifically, there were 157,469 used units funded during Q1. But it would appear March was the sole driver of the decline.
The month had a 15.4% year-over-year drop in funded used vehicles.
“When looking at both the wholesale and retail used-car markets in Canada, our data shows a first quarter that began with positive signs but ended with the unprecedented impacts from Covid-19,” Cox Automotive Canada president Maria Soklis said in a news release.
“During times like these, we hope that insights from our data can help the industry find a path to recovery quickly and efficiently so we can all get back to providing Canadians with the vehicles they need while also helping drive our economy forward,” she said.
Of the retail used vehicles funded via the Dealertrack network, trucks and SUVs only increased their dominance, Soklis said.
The Ram 1500 was once again the most-funded vehicle. And while two small cars (Honda Civic, Hyundai Elantra) made the top three, the majority of the list was trucks and SUVs, including the Toyota RAV4, a newcomer to this list.
“When looking at our data and comparing the first quarter of 2020 and 2019, we see SUVs and trucks taking an even stronger hold on the retail used-car market. The only small cars to make the top 10 were the Civic, Elantra and Corolla,” Soklis said.
“The data also shows that six out of the top 10 experienced slight price increases while the total average retail prices of funded used vehicles saw a 1.5% year-over-year decrease,” she said.
Still, the analysis does point out that Canadians still enjoy the compact car. The full report indicates, “While trucks and SUVs dominated the Q1 2020 Top Funded Used Vehicle list, compact cars still resonate with Canadian used-vehicle buyers.
“Along with the second-place Civic, the third-place Hyundai Elantra and seventh-place Toyota Corolla remain top considerations for used-vehicle buyers.”
The full list can be found here.
Off-lease volumes were already going to be a tough hurdle for the Canadian auto market to maneuver this year, even before COVID-19.
But the impact of the pandemic certainly heightens the concerns around what is expected to be two “peak years” for off-lease volume, as analysis this week from Canadian Black Book illustrates.
Lease terminations for 2020 are up 25% from 2017 lease terminations, CBB said, and 2021 lease terminations are expected to be up 31% from the 2017 numbers.
“This increase in supply is arriving in the market at a time when demand is weaker than expected,” CBB vice president of research and analytics Brian Murphy said in the analysis.
“Furthermore, many leasing companies are extending lease terms by 30-90 days to keep customers happy and deal with practical concerns in the lease return process during COVID-19,” Murphy writes. “Certainly, this is the right thing to do from a customer safety and satisfaction standpoint, but the industry is creating its own COVID lease return bubble in the process.”
Off-lease volumes projected to return to the market in spring months likely won’t do so until at least July, the analysis indicates. That’s on top of the off-lease volumes already slated for those summer months and beyond, meaning prices are likely to fall even more.
“Lessees will hopefully incent dealers and perhaps even lessors to buy these vehicles upstream. Once dealers re-open nationwide, lease returns can be managed more smoothly,” Murphy said. “However due to expected shortages of new product extensions, delays are expected to be common for the coming months and possibly stretching into 2021.”
One silver lining: older used vehicles that are still in good condition will have stronger demand, so their prices will not fall as hard. Consumers are likely to opt for used-car purchases instead of new for economic purposes, according to the CB analysis.
In terms of a used-vehicle price outlook, CBB boils it down to two scenarios: the most likely scenario and a severe recession scenario.
In the former, CBB would expect a 17% decline in wholesale values of 1- to 6-year-old vehicles (18% for truck segments, 15% for car segments) against the pre-pandemic baseline for the third and fourth quarters.
Should the latter scenario happen, the decline would be 25% (trucks at 26%, cars at 22%).
As for longer-term impacts, CBB anticipates in the most likely scenario that values in 36 months would be “close to pre-virus levels with only a small impact on values,” Murphy said.
In the severe recession scenario, “the effect of the pandemic and resulting recession will still be felt,” Murphy said, with a wholesale prices down 10% from pre-virus forecasts.
Meanwhile, the residual value forecast impacts from the two scenarios would include these two ranges of change to the outlook, according to CBB: no negative adjustment to down 4% in most likely scenario; down 2% to 7% in the severe recession scenario.
Both of these would depend on residual term and vehicle segment.
Canadian Black Book and TRADER Corp. each generated data and information this week aimed at uncovering just how significant the impact the COVID-19 pandemic has been on the country’s automotive wholesale and retail segments.
The results from both firms showed dramatic declines, especially with many auctions and dealerships forced to cease activities as authorities try to contain the disease spread.
Beginning first with the information from Canadian Black Book, the company surveyed its network of automotive retail clients across Canada to better understand the impacts of COVID-19 on auto retailing domestically. Analysts tabulated results from the 266 surveys completed between April 6 and 14.
CBB discovered the most significant numbers, themes and trends involved estimated percentage loss of business due to the COVID-19 outbreak.
Analysts indicated one-third of dealers say that they have seen a drop in their overall business to the tune of 50% due to the pandemic. Even more alarming, Canadian Black Book reported that another full one-third of respondents declare they have witnessed a business decline of 75%.
On top of those trends, CBB noted almost the last third (28%) are reporting over 75% loss of business.
“These numbers are staggering, to say the least. It is hard to imagine how these dealers will weather the storm, but we know they are resilient and will do just that,” said Brian Murphy, vice president of research and editorial at Canadian Black Book.
“The silver lining in this is that we know this is temporary,” Murphy continued in a news release. “There will be pain, but also a lot of learnings will come out of this that will make dealers more versatile and ready for adversity.”
The CBB survey also showed that 60% of dealer respondents from across the country have sales operations fully closed as a direct result of COVID-19. Similarly, 36.5% revealed that even their service operations are closed.
From those who are experiencing closures, when asked how long they expect these closures to continue, Canadian Black Book discovered most respondents (53%) say they don’t know. Of that same group of participants, 21% believe the closures to last one month and 15.5% feel this will go on longer, lasting two months.
The survey went on to reveal that 27% of respondents have encountered vehicle supply shortages related to COVID-19. Canadian Black Book expects that this statistic will increase during the next few months “as the ripple effect of global supply chain disruption is fully felt.”
Analysts insisted the COVID-19 outbreak has certainly crippled consumer confidence in general and specific to the auto sector in Canada. The vast majority of dealer respondents (86%) have suggested that their customers have expressed concern about selling and/or buying vehicles due to the virus.
“This has dealers across Canada considering strategies to inject some demand into the market,” Canadian Black Book said, while adding that when asked if they had considered offering special payment options for customers in a financial situation that have been affected by COVID-19, 67% of dealerships responded yes.
Analysts closed by saying their survey asked an open-ended question to get comments from dealers about changes made to their business as a response. The answers included:
“Laid off all staff and managers.”
“We have implemented a locked door policy where customers are screened before being granted access to the building.”
“All customer interactions are by phone and email only.”
Canadian Black Book mentioned another common theme in the dealer remarks were changes to “cleaning practices” and “complete sanitization of premises and vehicles.”
“Overall, there were a wide variety of comments,” analysts said.
CBB said it expects to conduct this survey again in the near future to get an updated look at how dealers are faring and reacting to the COVID-19 crisis across Canada.
TRADER insights
Nuno Loureiro, director of business intelligence at autoTRADER.ca, shared an array of industry findings with Auto Remarketing Canada.
After a strong sales performance in February and the early part of March, TRADER Corp. acknowledged the Canadian automotive industry is starting to feel the market disruption caused by the COVID-19 pandemic. Despite the projected downturn from automakers and temporary dealership closures in some parts of the country, newly released data from the company’s automotive marketplace points to a modest impact to Canadian auto pricing through the early days of COVID-19.
According to the autoTRADER.ca Price Index, which tracks Canadian auto pricing trends month-over-month and year-over-year from more than 400,000 vehicle listings, Loureiro determined the average new- and used-vehicle prices from late February to March experienced a moderate decline.
“While past data has indicated used-vehicle prices usually see a lift in Springtime, this decrease — although limited — could signify the impact of COVID-19 on traditional market patterns, and further changes as conditions evolve,” Loureiro said in a message sent to Auto Remarketing Canada.
Other data highlights from TRADER Corp. included:
• North American vehicles see a decrease month-over-month following a period of steady growth (New vehicles experienced a 0.8% drop, while used vehicles experienced a 2.9% drop month-over-month)
• Average prices for new trucks and sedans see first month-over-month decrease since September 2019 (down 1.2% and 0.3%, respectively)
• Used SUVs and trucks prices are down 0.9% month-over-month, while prices for sedans remain flat and continue to be the most economical body type on the market
Porsche Cars Canada is extending its roadside assistance services to include the approximately 235,000 Ontario hospital front-line workers.
The extension is aimed toward benefiting doctors, nurses and respiratory therapists, and will be in effect until May 31.
The program is aimed toward assisting those who might be experiencing a roadside event, regardless of the brand of vehicle they drive.
Porsche Cars Canada Ltd. president and chief executive officer Marc Ouayoun said the world is in the middle of one of the worst public health crises in history.
“And we are happy to offer a gesture to keep the valuable frontline workers moving as safely as possible,” Ouayoun said in a news release.
Ouayoun continued, “We recognize their tremendous contributions and feel that assisting in transportation issues during this time while they work towards the safety and wellbeing of Ontarians is our way to contribute to the greater good.”
To qualify, individuals who call 1-800-PORSCHE must identify themselves by presenting their Ontario hospital-issued identification between now and May 31. Services rendered under the Porsche Roadside Assistance Program include towing, battery jump-start, flat tire assistance and emergency fuel delivery.
Much like the U.S. set, the Canadian certified pre-owned vehicle market appeared to have struggled in March, amid the COVID-19 pandemic.
Here’s a rundown of how a few automakers fared, based on results shared with Auto Remarketing Canada:
Toyota had 2,075 certified sales in March, down from 3,259 a year ago. Through the first quarter, CPO sales are 7,085 units, down from 8,028 in Q1 2019.
Lexus moved 276 CPO units in March, versus 450 last March. Quarterly CPO sales fell from 1,152 to 930.
At Hyundai, CPO sales were down 6% year-over-year with 780 vehicles sold.
But certified sales for Hyundai are still up 29% year-to-date.
Subaru sold 249 certified vehicles in March, compared to 340 a year ago. Year-to-date sales remain ahead of 2019 figures (857 vs. 843).
Nissan’s 804 CPO sales in March were down from 1,334 last year. Though three months, sales have reached 3,022 units, down from 3,392 in Q1 2019.
Infiniti had 119 certified sales in March, versus 174 last March. Year-to-date sales of 410 are down from 430 through three months of 2019.
At Mercedes-Benz, CPO sales for the quarter fell 14.2% year-over-year, coming in at 2,625. But the company pointed out in a news release that CPO penetration of overall pre-owned climbed 7.3%.
US sales down, too
According to Cox Automotive data shared with Auto Remarketing, there was a 40.4% year-over-year decline in certified sales for March in the United States, and a 33.4% month-over-month drop. The first quarter ended up 9.5% softer than the same period of 2019, the company said.
All this after a promising start to the year.
The first month of 2020 was the strongest January for the certified pre-owned market in a decade.
February then beat those sales by 10%.
In a report from March, Cox Automotive, citing Motor Intelligence, said there was 238,229 CPO sales in February.
That beat year-ago figures by 13% and put the year-to-date sales figure at 454,188 through two months, Cox Automotive said.
Consider this: in 2018 and 2019, each a record year, respective certified sales through two months were:
- 2018: 415,140 units
- 2019: 411,160 units
As Cox Automotive put it in the analysis from last month, 2020 was already 40,000 sales ahead of both 2018 and 2019.
But then, of course, the impact of COVID-19 hit and Q1 certified sales ended up more than 9% softer than the previous year's.
Several automakers also shared U.S. CPO results in their latest sales reporting.
Porsche increased first-quarter CPO sales by 1.08% year-over-year, moving 5,827 certified vehicles.
Over at Mazda North American Operations, quarterly CPO sales were down 2.5% at 13,510 units. March was off 38.9%, with 3,392 certified sales.
Next up, BMW’s quarterly CPO sales were up 0.2% at 27,542. Its MINI brand CPO sales were down 18.1%.
At Volvo, dealers moved 1,543 certified vehicles in March and 5,948 for the quarter.
CARFAX Canada knows that the COVID-19 crisis is having a profound effect on its customers and employees.
The company said it is committed to supporting its partners and listed several steps it is taking in that area.
First, the company said it is available to help its partners through email and phone. Because its team is working from home, face-to-face visits and sales support collateral are not currently available.
CARFAX Canada is applying a 50% credit for all VHR subscriptions in April and said it will not charge for its valuation products in April. The company will credit 100% of the subscription cost for the Vehicle Valuation Report and Vehicle Trade-in Widget.
In addition, the company will not charge customers the $99 account access fee in April.
UPDATED: Story has been updated to reflect OpenRoad's new strategy.
In light of the COVID-19 pandemic, here is a roundup of how some dealer groups in Canada are responding,
AutoCanada, a dealership group with locations in eight Canadian provinces and Illinois, announced Wednesday it would temporarily suspend certain operations at its New Brunswick, Quebec and Illinois stores, per government orders regarding the closure of non-essential businesses amid the COVID-19 pandemic.
AutoCanada’s New Brunswick store and its eight Illinois dealership will have service operations but limited sales operations. Its four Quebec stores will have limited service operations.
The group’s seven Ontario stores will remain fully operational, per that province designating dealerships as essential businesses. Ontario has ordered non-essential workplaces to close, but dealerships are exempt.
“AutoCanada will continue to support customers with their vehicle servicing and purchasing requirements in this rapidly evolving environment, and customers are encouraged to contact their local dealership as needed,” the group said in a news release.
“Since the outset of the COVID-19 situation, the company has carefully followed the most current direction of government and related health agencies in our operating policies and procedures to ensure the safety and well-being of our customers and employees,” it added. “AutoCanada will actively monitor developments in respect of COVID-19 and governmental requirements and take actions as required.”
OpenRoad Auto Group, based in British Columbia, shared an update on LinkedIn last week.
“We are now changing our operating procedures, health & safety procedures, and adapting our way of doing business during these times,” it said. “Beginning today, sales showrooms at OpenRoad Audi, Hyundai Boundary, VW, Subaru, Genesis Vancouver, and Porsche Now Richmond are closed and available by appointment only until further notice. Service departments are open and offering touch-free contactless service appointments only.
“Next week, more of our stores will move to this model as we finalize many procedures at the store level. We thank you for your loyalty and patience in these times, and wish you all the best of health,” the group added.
More details on private sales appointments, online shopping, OpenRoad’s health and sanitization practices and more can be found here.
Zanchin Automotive Group, based in Ontario, said it would close its stores through April 8 to help contain the spread of COVID-19, but would continue to operate online.
“Like all of you, the Zanchin Auto Group continues to navigate these unprecedented times,” the group said in a statement posted to its website. “Our employees, valued clients and extended community are our top concern.”
The group later added: “We look forward to seeing you in our dealership soon. Wishing you all safety and good health.”
Its full statement can be found here: https://www.zanchinauto.com/covid-19.htm
Elsewhere in the Canadian dealership world, the Canadian Automobile Dealers Association emphasized in a Newsline post on its website that local dealers and provincial dealer associations are quite flexible when it comes to adapting to large-scale closures while remaining compliant with government regulations.
“During this unprecedented crisis, we support all of our dealer members and their choices as they face difficult decisions about their businesses, including mandated, recommended or voluntary closures,” CADA president and chief executive officer Tim Reuss said in the post. “For closures mandated or recommended by public authorities, we are strongly advocating with all levels of government to grant our dealer members that are willing and able to, the possibility to maintain service and maintenance operations while observing proper health protocols in order to safeguard the critical transportation infrastructure of our communities and our country.
“Ambulances, police vehicles, fire trucks, food and medical supply trucks, grocery home delivery vans — and most importantly the personal vehicles being used to get to work by the personnel on the front lines of this crisis such as doctors, nurses, supermarket and logistics workers, need to be kept running,” Reuss said. “Those of our dealer members that are able to provide this essential service while also ensuring the safety of their personnel and their customers, should be able to do so on a voluntary basis.”
CADA also has a COVID-19 resource page for dealers. The full Newsline post with more details on CADA’s guidance can be found here.
The Canadian Black Book analyst team released a comprehensive look at the country’s automotive wholesale and retail landscapes as auctions, dealers and finance companies all navigate the business challenges brought on by COVID-19.
Analysts began their report by recapping last week’s auction activities at Manheim and ADESA that moved online without in-person bidding in the interest of health and safety. Canadian Black Book acknowledged it might be the last timeframe when robust sales data arrives for analysts to review.
“As many provinces mandate non-essential services to close, it is expected that all auction activity, other than purely digital platforms will pause operations due to the current crisis,” analysts said in their update shared this week with Auto Remarketing Canada.
After watching computer screens and gathering from other sources, Canadian Black Book arrived at a couple of other assertions stemming from last week’s wholesale activities.
“Our industry analysts monitored several auctions and a variety of lanes throughout the week. We noted that there were an impressive number of online bidders for the auctions given the recent change in formats,” analysts said.
“Actual changes to values this week, through our analysis, were not significant and were quite normal in many respects,” they continued. “Our experts even noted that some vehicle prices have exceeded our expectations.
“It is expected to take several weeks for the impact of COVID-19 to be fully realized in the marketplace,” analysts added.
Immediate market reactions
Canadian Black Book identified five immediate actions taken by various parts of the automotive industry to pivot operations because of the coronavirus pandemic. Analysts mentioned:
• Many manufacturers are establishing programs to both help existing owners and to further incent those considering purchasing in the near term.
• The incentive of “90 days no payments” appear as an offering for multiple brands making an effort to attract new buyers. “We will be monitoring these incentives carefully,” analysts said.
• For existing customers, several OEMs are asking owners to contact them directly if they need assistance making payments during the crisis.
• Most manufacturers are temporarily stopping manufacturing on both sides of the border of parts and vehicles. Some manufacturers will work in partnership with medical equipment companies and government to produce products needed for the front lines of healthcare.
• When parts and vehicle production resume, it is expected there will be a period of many months of catch-up and the remainder of 2020 will face selective product shortages/delays caused by the massive disruption to the supply chain. Some vehicle model years may be shortened in length and vehicle introductions rescheduled.
Changes within retailing and likely recession
As of the time its update, Canadian Black Book pointed out that Quebec and Ontario issued orders mandating the closure of all but essential services. Analysts noted that Quebec and Ontario also indicated that car repair facilities are essential and can remain open.
“It is perhaps a grey area with respect to vehicle sales operations, so we will watch for a clarification in the coming days,” analysts said.
Canadian Black Book conceded an expectation that retail sales for March will be down by more than 60% industry wide. By comparison, the firm mentioned China and Italy both saw 80% sales decreases in February.
“It is our projection that we will experience a recession for the Canadian economy as a result of the COVID-19 health crisis,” analysts said.
Canadian Black Book spelled out two possible scenarios in terms of a recession. They were:
1. Mild Recession Scenario: Negative GDP growth in Q1-Q3, causes a significant drop in consumer confidence and a large increase in unemployment. This will result in a 25% drop in new sales to 1.44 million units in 2020.
2. Severe Recession Scenario: If there is a prolonged social separation policy due to coronavirus, followed by a deep recession, we foresee a 40% drop in new sales to 1.15 million units in 2020
Canadian Black Book went on to pinpoint four positive and negative factors that will determine new-model sales volume in 2020 and a 2021 recovery. They included:
Positive
• Low interest rates
• Credit is available to prime consumers
• Increased OEM incentives are expected to help stimulate the market.
• Low gas prices will help the popular SUV and truck segments.
Negative
• Unemployment will increase substantially (at least temporarily).
• Global supply chain issues will constrain the availability of some products.
• There will be a substantial drop in consumer confidence resulting in the purchase of fewer big-ticket items or what economists call consumer durable goods.
• There may be a substantial reduction in fleet/rental purchases in 2020 and possibly 2021. It is expected that leisure and business travel will be reduced in 2020, and corporate fleets may defer vehicle replacement until the economy improves.
More insight on wholesale-price impact
Canadian Black Book wrapped up its latest analysis by using its mild-recession scenario to compile an initial forecast on how wholesale prices might change.
Analysts explained that in the short term — the next three to nine months — they project a drop in wholesale prices compared to a pre-virus baseline projection for the summer selling season.
In the most likely scenario of a mild recession, Canadian Black Book sees an overall drop in wholesale prices of 12% compared to baseline. Here’s an example involving 3-year-old models this summer (2018 model year). Analysts project a 14% drop in wholesale price for SUVs and light trucks and an 8% drop in wholesale price for cars.
“This is our preliminary outlook and will be revised as there is greater certainly around closure of dealerships and the duration of these closures,” analysts said.
In its longer-term outlook for residuals (36-month residual values of upcoming 2021 models, in the summer of 2023) Canadian Black Book indicated the effect of the pandemic will be felt, but most values will return to almost the pre-virus baseline.
Specifically, analysts project a modest 3% decrease in wholesale values across all segments.
“The Canadian Black Book team will provide frequent client updates as the situation does continue to change on a regular basis,” analysts concluded.
