Canadian Black Book’s latest COVID-19 auto sector update, on April 22, reveals an increase in wholesale auction activity in Canada.
ADESA, for example, opened its auctions across Canada (save for Ontario and Quebec) and are operating as simulcast only. However, for Toronto’s ADESA auction they will offer Simulcast and sales this week, with a digital auctioneer. Manheim auctions are temporarily closed, but the MUVIT Digital Auction service is open.
“From a retail perspective, both Ontario and Quebec remain in a semi-lockdown state as in person dealership contact is not allowed,” said CBB. “Currently, in Ontario, the state of emergency is extended to May 12 and in Quebec until May 4. It is hoped that both provinces will soon relax rules and allow sales operations to open again.”
Dealers in these provinces can service cars — a particularly big win for Quebec dealers, since only a select few could do this and only for emergency service needs. Certain protocols must be put in place, and sales cannot be done in-person.
“The remaining provinces have no such formal restriction,” said CBB. “However, many dealers have voluntarily taken special measures to close and protect both staff and customers.”
As for vehicle prices, Canadian Black Book is anticipating weeks of instability that may stretch into May due to consumer caution.
As for the Canadian dollar, it dropped $0.77 in early January to $0.69 in late March, but has rebounded (slightly) to around $0.71. Below the mid-eighty cent range is considered critical to preserving the used vehicle export business to the U.S. and overseas.
“This flow of vehicles helps keep wholesale prices and forecasted residual values strong here at home, by siphoning off considerable amounts of wholesale supply,” said CBB.
Finally, on the recession scenarios there remains two: Most Likely Scenario and Severe Recession Scenario.
The first suggests a potential 25% decline in new sales in 2020 to 1.436 million units. CBB is projecting a drop in wholesale prices by 17% of 1-6 year-old vehicles as the economy begins to recover — so an 18% decline for SUVs, vans, and light trucks, and 15% for cars. This scenario also suggests that the effects of the crisis will be felt 36 months from now, though CBB anticipates that values will return close to pre-virus levels — with minimal impact on wholesale values.
“Our residual value forecast will drop by 4% to 0% (no negative adjustment) depending on the term of the residual and the vehicle segment,” said CBB.
The second more severe projection suggests a deep recession that would lead to a 40% decline in new sales in 2020 to 1.149 million units. This would come as a result of prolonged COVID-19 social separation policies stretching into late summer or early fall, and the potential for consumers to feel insecure (for an extended period of time) about buying a vehicle.
“Under this scenario we project a drop in wholesale prices of 1-6-year-old vehicles compared to a pre-virus baseline, of 25%. This will be a 26% drop for SUVs and light trucks and 22% drop for cars,” said CBB. “Looking forward in Scenario B, 36 months from now we expect the effect of the pandemic and resulting recession will still be felt. We project a 10% market level decline of wholesale prices compared to pre-virus projections.”
In this case, CBB’s residual value outlook would drop between 7% and 2%, depending on the term of the residual and the vehicle segment.
