Change was the order of the day at the 5th annual CADA Summit that opened today at the King Edward Hotel in Toronto. Dealers, OEMs and industry leaders sat shoulder to shoulder and heard about how the forces of change are impacting them.
“I am thrilled to welcome you today to the 5th CADA Summit,” says Marc Bourassa, CADA Chairman in his opening remarks. “Our theme this year is change isn’t coming — change is now.”
Bourassa says the major changes affecting the auto retail industry aren’t just theory, they are now happening. The jam-packed agenda was designed to help dealers gain new insights in how to react and benefit from the changes, he says.
Canadian auto dealer will have full exclusive CADA Summit coverage in a special e-blast on Friday with features, interviews and video coverage.
Here’s an overview of the early sessions today:
The event kicked off with an economic panel moderated by CADA’s Chief Economist Michael Hatch, and they assessed the economic outlook for dealers in the months ahead.
Hatch said it was a record year for car sales in Canada with $105 billion in top-line revenue for new car dealers. But the picture isn’t completely rosy.
“Uncertainty abounds,” says Hatch. “We don’t seem to be in a position of very strong economic growth. Yet, car sales continue to outpace economic growth.”
Building plane in mid flight
Hatch said some of the economic uncertainty is being fueled by the disruptive impact of newly elected U.S. President Donald Trump. He described the Trump administration as “building the plane in mid-flight” and this leads to uncertainty for all economies, not just for Canada.
Panelists were generally positive about the state of Canada’s economy. “Consumer spending has been a big driver of economic growth,” says Dina Ignjatovic, Economist, TD Bank Financial Group.
She says B.C. and Ontario outperformed the rest of the country in terms of the housing market, but she expects that to slow down slightly. “We do expect a cooling in the housing market — not a crash but a cooling,” says Ignjatovic. “We do expect a slight increase in mortgage rates going forward.”
Ignjatovic says economists are looking for more growth to come from the export markets. They expect the Canadian dollar to hover in the mid-70 cents range for the next couple of years. “This should bode well for exports,” she says.
“On the investment front there is some hesitancy,” she says, as business leaders consider the impact of the new U.S. Presidency before they make more investments. “At this point it’s a little too early to tell,” she says. “There was a lot of campaign rhetoric about things that could negatively impact Canada.”
She says there are concerns over NAFTA. “I think Mexico is more of a target than Canada,” she says. “I don’t think Canada is going to be hit too hard on the trade front, but at this point anything is possible and there will probably be some concessions that Canada will have to make.”
If you look at the auto sector, sales have been good. “How long is this pace sustainable?” she asks. “The growth rate has been slowing. We have seen incentives on the rise, which suggests demand isn’t as strong.”
There are a lot of used vehicles that are going to be hitting the market and this will provide more competition for the new car market. “We could see that competition take some steam out of the market,” she says.
Bill Robson, President and CEO of the C.D. Howe Institute, talked about the impact of wealth on investment decisions and its contribution to the economy.
Hatch asked Robson if he thought Canadian consumers were over-leveraged. “You have to be nervous,” says Robson. “There is a subset of the population that has more house than they ought to have.”
But Robson says Canada’s household net worth is solid, and household savings levels are good. “It’s a concern, but I wouldn’t make it a headline one,” says Robson.
Robson said he doesn’t expect interest rates to rise much, but he says we can expect a slower economic growth rate going forward.
In terms of the housing market, Hatch says there are some pockets of the country that are “out of whack.”
Robson says Toronto, for example, is a “talent magnet” and that draws people to the city and that drives up housing markets. “There is a strong underpinning to that,” he says.
Hatch says the auto dealers in the room are investing millions in their physical infrastructures, and they are interested in knowing what their longer-term future looks like. Is their future secure?
Ignjatovic says part of the answer depends on the technology that will be coming as part of the sharing economy and other breakthroughs, but she doesn’t expect major disruption in the short to medium term. “You are going to have people that like to drive and want to drive,” she says. “In the medium term, car ownership is still going to be very relevant.”
Robson says when you look very far out, there will be major changes to the transportation sector, but in the short-term he doesn’t see there will be disruptive changes displacing current ownership models.
Auto financing trends
The sold-out event is backed by an exclusive sponsorship from TD Auto Finance.
Gino Cozza, Vice President of Sales, Distribution and OEM Relationships with TD Auto Finance shared his observations about auto financing trends.
“2016 was another great year for our industry,” says Cozza. “Events like today are important, taking the time to better understand the changes we face now,” he says.
Cozza says long-term financing is a “hot issue” for the industry as consumers want more expensive vehicles and are willing to have longer term loans to keep monthly payments affordable. Cozza says the bank’s average loan is longer than 72 months and a good portion are longer than that. “These loans do enable consumers to take on more debt,” he says, adding that this leads to negative equity in their vehicles.
“It’s obviously a concern for us,” says Cozza, particularly with residual values. “We have to ask ourselves, is this sustainable?”
Cozza says the industry needs to have “real conversations” about these financing trends. “We all have a role to play.”
In closing, Cozza, who is considered a “car guy” by his banking colleagues says he loves the auto retail industry. “We are here to support you and your industry as a whole,” says Cozza.