Auto sales plummet as pandemic kills demand and keeps dealerships closed
With stay-at-home orders forcing dealerships to close, automakers to halt production and potential buyers to stop driving the cars they already own, it’s no wonder new car sales have plummeted in Canada during the COVID-19 lockdown.
New vehicle sales crashed 75 per cent in April from 2019 levels, following a 48 per cent drop in March, according to Desrosiers Automotive Consultants Inc. data released this week. Previously, the worst drop on record was in February 2009 when sales fell 28 per cent during the financial crisis.
It’s a major blow to the million people directly employed by the auto sector, many of them already at home receiving government emergency response benefits directly or through their employers, whether they work at dealerships, factories, repair shops or in financing.
“It’s devastating,” analyst Dennis Desrosiers said. “The difference between previous corrections and this one is that in those ones people were still driving.”
Before the pandemic made a mockery of typical industry modelling, Desrosiers predicted about 1.9 to 2 million new vehicles would be sold in Canada this year, relatively flat compared to 2019. Now, if the economy opens up by midsummer, he estimates the number of vehicles sold will fall to 1.3 to 1.4 million, down between 30 and 40 per cent from last year.
The majority of demand for new cars in Canada comes from people replacing vehicles, Desrosiers said, adding those decisions will be delayed if cars are avoiding wear and tear from daily usage. Cashstrapped consumers who have to buy now — whether they totalled their car in a collision, their old junker just died or their lease expired — are more likely to buy used, given millions have lost their jobs during the pandemic. Used vehicle sales were relatively stronger in April, though volumes still fell between 30 and 40 per cent, Desrosiers said.
He expects it will be 2022 before auto sales recover to 2019 levels. Until then, he expects aggressive promotions once dealers are allowed to sell again.
“If you are in the market for a new vehicle, you’re going to be able to get one hell of a deal,” he said.
But first, dealerships need to reopen. Most have had to shut their sales floors even if their service departments remained open, while 96 per cent laid off employees, according to a survey by the Canadian Automobile Dealers Association, which represents 3,200 dealers nationwide.
“It’s been very challenging for most dealerships,” said Oumar Dicko, chief economist at the association.
Since vehicles are a big-ticket item, typically the second most valuable purchase in any household after the home itself, consumers are delaying buying decisions given job losses or worries about future cuts, Dicko said.
Still, he said dealerships, many of which have made use of the federal emergency response including the wage subsidy and business loan, are in discussions with governments to plan for a recovery.
“The good news is, in many provinces discussions are already happening on a plan to gradually reopen in a controlled, measured manner,” Dicko said.
Back to business means a variety of safety measures including sanitizing vehicles and stores, practising physical distancing of two metres and conducting test drives with the staff member in the back seat of the vehicle.
It also means pushing the government for incentives to jumpstart sales. The association has asked for a short-term sales tax holiday and for a national vehicle-scrapping program that would encourage people to get rid of old gas guzzlers and buy newer, more environmentally friendly models. It also called for a return of the Canadian secure credit facility brought in after the last financial crisis to support the lending capacity for asset purchases including vehicles.
Demand for new vehicles spiked in China after lockdown orders lifted, Honda Canada chief executive Jean Marc Leclerc said in an interview this week. But it’s not clear that pattern will repeat in Canada given the labour market, he said, with personal financial situations playing into how quickly things get back to normal.
“I believe it will take some time,” Leclerc said, adding he expects it will take a year for the sector to recover.
“When all levels of government say unequivocally that yes, it’s safe to go to this particular business or that particular business, that’s going to be the trigger.”