Scotiabank released its Global Auto Report on Wednesday, predicting that new-vehicle sales in Canada will end up roughly the same as 2015’s tally of 1.9 million units.
Looking closer at the numbers, Scotiabank’s predicted 1.9 million units to-be-sold for 2016 is slightly higher than the 1,898,000 vehicles that were purchased in 2015.
In the report, the company says that it expects the sales volumes to remain largely flat for the year “as diverging trends between the industrial heartland and commodity producing regions balance each other out.”
Carlos Gomes, Scotiabank’s senior economist, summarized some of the expected factors to be at play that will be a theme in 2016.
"Car and light truck sales will continue to be supported by low interest rates and stimulative financial conditions around the world," Gomes said. "Economic activity and demand for new vehicles will continue to be buoyed by the strongest advance in Canadian non-resource exports since the new millennium, as well as by strengthening U.S. demand and a currency which recently fell below 70 cents (U.S.) for the first time since early 2003.
"Diverging trends between the industrial heartland and commodity-producing regions are expected to balance each other out in 2016, keeping volumes unchanged. Stronger employment growth and economic activity in the export-reliant manufacturing provinces will lift sales in these markets, but deteriorating fundamentals and weakening demographic and income trends will continue to pressure volumes in other regions."
Some other highlights of the report, according to Scotiabank, include the following:
- Even with sluggish global demand, 17 out of Ontario's 21 manufacturing sectors posted double-digit export gains in 2015.
- Broad-based manufacturing export gains are also expected to lift economic activity and vehicle sales in British Columbia and Quebec in 2016. Strengthening exports are particularly evident in British Columbia, with nearly half of all manufacturing industries posting export growth in excess of 20% in 2015.
- In Alberta, new-vehicle sales declined 12 percent last year to 236,000 units. A further slide to 220,000 is projected for 2016, as oil companies continue to curtail their capital expenditures and the labour market weakens amid a large overhang in global crude oil inventories.
- Vehicle sales in the remaining provinces were in line with expectations last year. Volumes declined in Saskatchewan and Newfoundland, undercut by the downturn in the energy sector, and were unchanged in Manitoba and edged higher across the Maritimes.
Click here to check out the full report.
FCA Canada Inc. is returning to the leasing business through a partnership with Ontario-based SCI Lease Corp.
The two companies will be offering a leasing option for shoppers on all FCA nameplates: Chrysler, Dodge, Jeep, Ram, Fiat and Alfa Romeo.
FCA Canada and SCI Lease Corp. have been working over the course of year to design a program they say can “greatly assist consumers and their automotive financing needs."
The retail lease program is currently being rolled out as a pilot in southern Ontario starting this month. The companies explained the growth will proceed in stages across Canada, and will be established nationally by the beginning of 2016.
“We developed a great relationship with SCI Lease Corp. and feel with their expertise it’s the right time to re-enter the leasing market. Our program is about affordability and offering customers exceptional value with a choice of payment options that makes sense to them,” said Dave Buckingham, chief operating officer at FCA Canada.
“With the addition of leasing to our existing range of payment options, we have a full array of product offerings to meet the financial needs of Canadian consumers,” he continued.
Consumers will be privy to several lease terms, which will enable them to drive a new FCA vehicle every two to five years.
At the end of the lease term, consumers will have three options: Lease a new FCA vehicle, purchase the currently leased vehicle, or return the lease vehicle.
This reentry into the leasing market serves as a huge opportunity for FCA Canada as it hasn’t had a national captive leasing program since the credit crisis of 2009. With the closing of Chrysler Financial Canada amid the economic downturn, FCA Canada’s presence in the leasing market has stagnated. Now, with the new SCI partnership, the automaker has the potential to make a huge impact on Canadian leasing penetration.
“Leasing provides consumers and dealers with a great new addition to FCA Canada’s current financing options available in the marketplace. The SCI Lease Corp. team is very pleased to be working with FCA Canada and their dealer network to provide consumers with a smart new option for acquiring their vehicles.” said Alan Bird, president and chief executive leader for SCI Lease Corp. “We are looking forward to supporting FCA Canada in maintaining their sales success in the Canadian market.”
It’s no secret: Taking advantage of your buyer’s behavior will bring you more leads and can be what you need to edge out the competition. As Forbes Magazine puts it, "When you find the gaps between what your competitors are doing and what the market wants, your own value proposition and strategy becomes sharper."
So, if you’re one of the hundreds of dealerships throughout North America trying to get a competitive edge selling to millennial buyers, we encourage you to listen up!
According to a recent Edmunds’ analysis of car registration data from Polk, millennials are 46 percent more likely to lease then they did five years ago and are more likely to lease than the industry average.
The recent rise in car purchases among millennials is a topic we have covered several times here on the Dynamic Display Advertising Blog, including what millennials expect on a dealership website and what channels are best to reach them. However, the growing propensity among millennials to lease vehicles is new territory. Here are a few quick things you can do to attract their business.
Add leasing promotions to vehicle detail pages (VDP)
With the knowledge that millennials like to lease new vehicles, it would be prudent to look at the VDPs of the cars that millennials like to purchase and offer promotions for leasing at the appropriate buying stage. Dealerships often approach their websites and VDPs with a set it and forget mindset. However, different messages resonate with different buyer personas and it should follow that the content of your VDPs should optimize to their preferences.
Add leasing messages in your advertising
Extending past the VDP, the next step is to add leasing promotions and offers directly into the creative of your inventory display advertising on vehicles that are popular for millennials. Similar to VDPs, adopting a more strategic segmented approach to messaging on your advertising creative will provide you with a greater response than a blanketed advertising message.
Add more leasing messages into your mobile advertising strategy
Although we’ve stated this before, it’s important enough to reiterate the fact that millennial buyers prefer consuming information on mobile devices, more so than traditional consumption on PCs. As a result, increasing your leasing based advertising on your mobile advertising can further optimize your results.
This post originally ran on Speed Shift Media's Dynamic Display Advertising Blog. For more posts from Speed Shift Media, see www.speedshiftmedia.com/blog.
Canadian performance stood out in General Motors Financial Co.’s second-quarter financial performance, with growth in both leasing volume and loan originations.
This may come as good news to the dealer community, as high lease rates means more used supply a few years down the road from now when those units make it into the auction lanes.
Dan Berce, GM Financial’s president and chief executive officer, reported during the company’s conference call to discuss Q2 results, “GM’s penetration of Canadian lease has now exceeded the industry average.”
This may bode well for the leasing market that had fallen off dramatically after the Great Recession hit in full force and credit dried up.
With an industry average lease penetration of 24 percent, GM’s leasing penetration rose to 27.5 percent in the second quarter. Berce said this Q2 performance almost triples lease volume year-over-year for the company’s performance in Canada.
“We are the exclusive lease provider for GM in Canada, so we were the driver of that increased lease penetration,” Berce said.
Berce explained some of the factors behind the growth in leasing focus on expanding payment options for customer.
“Canada was strong, almost tripling the (lease) volume year over year. That, again as we talked about last quarter, was a function of great programs that were introduced by GM Canada as well as our introduction of a bi-monthly payment program, which has been really well accepted by the consumer in Canada,” Berce shared.
In the U.S. and Canada, the company originated a bit more than $1.5 billion of leases during the quarter.
“For the first time that about equaled our loan origination volume in the quarter,” Berce said.
From a credit standpoint, company execs said the lease portfolio in the U.S. and Canada shows very little delinquency activity.
“Both in the US and Canada, is predominantly prime and our credit results reflect that profile,” Berce added.
Commercial lending in the U.S. and Canada is not performing quite as well, Berce said during the call.
“We continue here the slow growth in this business. We are up to now 367 dealers in the U.S. and Canada, a book now of about $2.4 billion of mostly floor plan loans at 88 percent of the portfolio. The bulk of it is dealer loans on either real estate or working capital,” he said.
That said, GM Financial expects the commercial business to ramp up during the remainder of 2014 and into 2015.
“As we have said repeatedly, dealers do like to place their business with a lender from prime, subprime lease and commercial at a one-stop shop,” Berce said. “With our introduction now of prime lending in the US, we do have a complete suite of products that we will be rolling out and this should help traction in our commercial lending business.”
Though analysts offered no short-term good news in regards to Canadian leasing levels, movement in the new-car market could spell more off-lease vehicles in the future.
That is, if OEMs are able to turn consumers away from long-term loans and point potential buyers toward leasing.
New-car sales in Canada are soaring. Why is this important to the remarketing industry?
Well, of course, “Everybody knows that to be a used car, at some point it has to be a new car, as well,” Brian Murphy, senior manager Senior Manager, Automotive Practice – Canada at J.D. Power and Associates, told Auto Remarketing Canada laughingly.
So fundamentally, any significant changes in the new-car market affect the used-car market, as well.
The overwhelming trend in the new-car industry this year has been a shift toward long-term loans — 72 months or greater.
According to J.D. Power and Associates data, in 2008, Canada saw slightly over one third of new-car loans coming in at 72 months or longer.
In 2013, as of early November, the long-term loan penetration rate had almost doubled to rest at 63 percent.
“What that means is that if a consumer finances a car for 96 months or more, which is about 9 percent of Canadians, it causes them to keep the car slightly longer,” warned Murphy.
“It simply means that car won’t turn over into the used-car market as early as it once had.”
This has the potential to create even more supply pressure on used cars simply because there may very well be fewer new cars returning to the market.
“A lot of this depends on what incentives the manufacturers put in place in the marketplace to get a consumer out of the car they bought years ago and into a new one,” said Murphy.
“If long-term loans fundamentally change consumer behavior and cause them to keep the car even just a year longer, it decreases the number of cars that are leaving the hands of the first-time buyer for the used-car market,” he continued.
How Does this Trend Relate to Leasing?
Well, first we have to take a look back at leasing trends during the past few years.
As leasing penetration fell off the cliff in 2008, it has “never really come back,” said Murphy.
Instead, consumers have begun to take note of new-car and long-term loan incentives being pushed by the manufacturers during the worst years of the economic downturn.
According to J.D. Power data, around the end of 2007 leasing penetration in Canada was hovering at around half of the vehicles that made it off dealers’ lots, which, of course, meant a good supply source of used vehicles.
“We all knew those were coming back in three to four years. And they probably make good used cars,” Murphy added.
But once leasing rates fell, penetration hovered at about 15 percent until the end of 2010, after which rates crept up slightly.
That said, since the drop-off, leasing penetration rates have only reached above 20 percent once, Murphy said.
ADESA chief economist Tom Kontos explained that one can look at U.S. leasing trends a couple of years back to better understand where the Canadian market stands today.
“We are seeing the Canadian market follow a similar track as the U.S., but just a couple of years behind. We saw low leasing levels in the U.S. in 2011, 2012 and into 2013, and they have just begun to pick up,” Kontos said. “Canada still has a year or two of low leasing penetration levels in store.”
Now, Murphy said, leasing penetration in Canada sits at about 17.5 percent, “so three years from now that won’t be a good story as far as used supply of cars goes.”
Can Manufacturers Create The Shift?
That is, unless manufacturers can switch consumer interest back to leasing — or if they feel the need to.
“How it relates to leasing is that I think there is a risk to the business overall to keep a consumer in a car for that long, so manufacturers are starting to look at leasing perhaps as a way to control when customers come back into the market,” Murphy said. “So if they take that on as an antidote to long-term financing, then leasing could pick up.”
But it all depends on if the manufacturers see high long-term loan penetration rates as a problem.
Murphy said it is possible they will, noting, “If you put consumers in cars for seven or eight years, it’s really long down that path that they will be in a positive equity position on the car, which makes it difficult to get them out of it.”
If OEMs are troubled by this trend, they will most likely push incentives up on leasing, which may in turn push leasing levels back closer to pre-recession levels, spelling a potential used-supply surge for the remarketing industry.
That said, Kontos warned it is going to take quite an incentive push to break habits and turn consumers back toward leasing.
“If OEMs turn their focus to lowering the level of long-term loans, it is going to take a big push on leasing incentives to switch customers over. And it might not work right off the bat; customer habits can prove hard to break,” Kontos said.
And it may not be soon, as consumers looking to manage their monthly budget and try to pay the least amount possible for transportation are taking advantage of long-term loan options.
“I would also say these long-term loans, coupled with what we call irregular payments, with the ability to pay biweekly or bimonthly, allow the manufacturers to advertise in the paper extremely attractive financing offers. It looks really great on paper,” Murphy said.
“It’s a wonderful marketing message and it helps with traffic. I think this is one of the reasons that Canadian automotive industry is headed towards a record year if things keep going as they have been. These long-term loans and very low interest rates are luring consumers to the showrooms, and it’s working,” he continued.
That said, time will only tell how sustainable the practice is, and what perhaps some of the negative effects will be.
