The automotive future after coronavirus
It might seem insensitive, given the incredible hardships so many have had to endure. But the fact is that this, too, shall pass and we will, despite the havoc that has been wrought these last two months, have to start considering what a postCOVID-19 Canadian automotive industry will look like.
Of course, right now, the immediate future of our little part of the world looks pretty apocalyptic. According to Dennis Desrosiers of DesRosiers Automotive Consultants, sales in March dropped off by 48 per cent. And again, according to Derosiers, that’s with sales “only declining moderately in the first couple weeks of March.”
Desrosiers’ predictions for the rest of the year are hardly encouraging. His best-case scenario sees auto sales down 15 to 20 per cent; the worst some 60 per cent.
So, what does the future of Canada’s auto world look like? Is it really as gloomy as things look right now, or is there room for optimism? To find out, we’ve enlisted the help of Timothy Cain, number cruncher extraordinaire and Driving’s own in- house data wonk.
Timothy Cain: Though I’m rarely accused of bringing an optimistic bent to any industry discussion, it’s not impossible to paint at least a semirosy picture for the auto industry looking months down the road. It is, however, impossible to construct a positive image for the immediate situation.
Assuming that this ends at some point in the relatively near future — “ends” being a particularly challenging word to define at the moment — there are a handful of factors to consider before we affirm the likelihood of an 800,000- unit sales year for the Canadian auto industry. First, think of the number of Canadians whose income hasn’t changed, yet whose reduced spending habits may open up a great deal of discretionary spending potential. Second, the early spring’s auto sales volume has slowed to a trickle, creating, in some corners of the market, a great deal of pent- up demand.
Third, there is the very real possibility of a return to “normal” coinciding with the industry’s typical seasonal uptick. And, of course, manufacturers, always willing to throw incentives at slow-selling models, will not shy away from putting some serious money on the hood. And finally, there’s the realization that dealers will, when their doors open again, possess more than enough inventory to meet demand.
David Booth: I think it’s going to be a little more complicated than that. In fact, I think there’s going to be pockets — perhaps even large pockets — of a significant rebound for the exact reason you give. But I also believe there are some segments that are going to be seriously diminished.
Basically, all those who absolutely need a new car will shop for them, regardless of whether their financial situation has been diminished or not. And those who have, and have always had, the wherewithal, will simply go ahead and buy whatever they want. However, there is a significant portion of the marketplace, most of them young, who are living way beyond their means. They will, if this economic downturn lasts much more than a few months, learn they must choose between the house and a fancy car. I see a serious retraction in entry-level luxury segments — especially in entry- level luxury SUVS like BMW’S X1 and Audi’s Q3 — as economic sensibility intrudes on Millennial delusion.
TC: The prevailing fiscal reality of which you speak — the high household debt, high student loan payments, workers in the so- called gig economy lacking the benefits to which a prior generation was accustomed — may do more than just drive consumers down- market, now that potential economic doom is on the horizon. And it may do less than completely drive those same consumers out of the market.
Following the last economic collapse, the more affordable option being considered wasn’t a less costly new vehicle, it was often a pre- owned car. We will also probably see decreased brand loyalty, typically seen in the aftermath of economic catastrophe as more car shoppers prioritize purchasing only when they’ve located the very best deal, regardless of make. With these factors in mind, some manufacturers may suffer more than others.
After a five-year run of record annual auto sales performances between 2013 and 2017, automakers have proven extremely willing, via increased incentives, to create demand where no demand — and, more importantly, no fiscal prudence — exists.
DB: I suspect that an even bigger factor may prove the death of the “mobility” market we’ve all been told is the future of the automotive industry. For the past half decade, the mantra has been that a combination of crowded megacities, environmental consciousness and the growth of ride-sharing would all be the death knell of private auto ownership. Virtually every automaker bought into various mobility “solutions,” and they pretty much went nowhere. Ride- sharing — the use of one car by many people, like Car2go — has been a dismal failure. Ride-hailing — Uber, Lyft, et al — has been more successful, but hasn’t had the much promised benefit of reducing the number of cars on the road.
And I suspect this crisis will be its nail in the coffin. Who, pray tell, is going to voluntarily take public transportation of any kind — including ride-hailing — when COVID-19 is just a sneeze away?