In its latest COVID-19 Automotive Market update, Canadian Black Book reveals its retention index declined an additional 3.20 points in May (close to April’s record decline), thanks in large part to lower consumer confidence and high levels of market uncertainty.
“Throughout the month of May we have observed that wholesale prices have continued their decline,” said CBB in its summary. “Although used and new car retailers nationally are now able to operate with fewer restrictions than previous months, volumes remain down and future demand uncertain.”
CBB also said auctions are limited to online operations only, although the good news is that auction sales volumes are slowly returning to pre-crisis levels. And bidder participation is growing.
Overall, vehicle prices have declined across the industry since March, when provincial government restrictions were imposed due to COVID-19. The volume-weighted car segment values from the past week gave way to an overall decline of 0.38%. A week earlier that decline was 0.65%.
“Trucks and SUVs depreciated 0.79% during the past week, which is a decline over the previous week’s 0.47% drop,” said CBB. “This is the largest weekly decline we have seen this year. Overall, we saw the market depreciate 0.59% vs. a very similar 0.56% the week prior.”
CBB is expecting wholesale and retail prices to continue to decline as we enter the summer period, thanks in part to the large influx of incremental used vehicle inventory expected to reach (and impact) the marketplace. More low retail demand due to a deep recession, and the unemployment numbers that will arise from it, are also to blame.
Unemployment numbers rose sharply in March, which coincided with provincial governments’ reaction to COVID-19 through states of emergency — and in some provinces (such as Ontario and Quebec), ordering non-essential businesses to close. CBB said unemployment claims have jumped significantly, and in May the Statistics Canada Labour Force Survey indicated the unemployment rate reached 13.3%. That’s up 232% from February.
“The situation is so severe that Statistics Canada changed the questions they ask part of their labour study to better understand the Canadian jobless situation,” said CBB. “In March there was a drop in employment of over one million workers, followed by a further decline of almost two million in April, bringing the total employment decline since the beginning of the COVID-19 crisis to over three million.”
The crisis has led to a decrease in consumer confidence, which could in turn lead to deferrals or a cancellation of any plans to purchase expensive products like a new or a used vehicle. More than half of Canadians (52.2%) remain pessimistic about their future employment prospects, which is not ideal for a speedy, national recovery.
“We may see consumers defer vehicle purchases or shift from new cars to used, despite the many generous OEM and dealer incentives offered,” said CBB.
This brings us back to used vehicles; Unsurprisingly CBB is anticipating a large influx of used vehicles coming to the marketplace over the next six months. Those vehicles will flood the market, with deferred lease returns, downsizing of rental fleets, increased repossessions, and a backlog of unsold inventory from March-May, all of which will have an impact on the marketplace.
They also expect a continued decline in wholesale prices for some time, with the possibility of improvement around the winter period.
“Although the economic effects of the pandemic will continue to be felt as far out as three years from now, we project that wholesale values will return to the pre-COVID-19 baseline by 2023, as used supply will decline due to cuts in retail and fleet sales throughout 2020 and into 2021,” said CBB.
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