The first six months of the year may have been a complete disaster, due largely to the novel coronavirus pandemic — but there are some positive signs, according to Canadian Black Book’s most recent COVID-19 Auto Industry Update.
Starting with the bad news, light vehicle sales for the first six months declined 34.3% from 2019 — equivalent to selling 336,000 fewer units year-over-year. CBB also notes that light vehicle sales for June are estimated by DesRosiers Automotive Consultants (DAC) to be down by 16.2% YOY. “The numbers are certainly a shock,” said CBB.
Wholesale used vehicle pricing continues the trend of improving, which was already seen during the last week of June and part of the first week of July. CBB said car segments achieved minor gains last week: the segments were up 0.19%, and this week 0.02%. For light trucks, the gain was 0.18% across all segments.
“This is the first positive movement on average across all light truck segments since late May of 2019,” said CBB. “As a reminder, the preceding week saw light trucks decline, by a marginal 0.05%. These changes in price trends indicate that the market is pausing its downward trajectory and prices are heading upward. Much of this change can be attributed to a temporary restriction of used vehicle supply in the market.”
The past several months have seen few trade-ins, lease returns, and repossessions, which means there are not a lot of used vehicles in the wholesale market right now. However, CBB does expect this to shift in the coming months and is anticipating that supply levels in the market will increase.
On CBB’s Used Vehicle Value Retention Index (for 2 to 6-year-old vehicles), the company said the index demonstrates the “extreme amount of upheaval”; February to May revealed a drop of 7.8 index points, which is equivalent to 7.2%. For June, that downward trend in values has flattened and has so far seen a change of only 0.01%. Stronger values have been noted in the last days of the month of June.
As for the economy, The Conference Board of Canada’s summer report (Canadian Outlook Summary, Summer 2020) reveals an anticipated 8.2% contraction for the Canadian economy this year.
“That would make it the worst annual contraction on record,” said CBB. “At the lowest point, nearly three million Canadians lost their jobs. There has been significantly better employment news since the bottom of the job market, as almost 300,000 jobs came back for May. Despite the good news, the expectation put forward by The Conference Board is that there will be around 1.1 million fewer Canadians employed in 2020 as compared to last year.”
Less jobs also means less household spending among Canadian consumers, which has declined 11.3% in Q1 2020. There is also an expectation that household spending will drop even more before an anticipated recovery around Q3 and Q4.
“However, Canada will not get back to more normal levels of consumer expenditure until the second half of 2021,” said CBB. “This has inevitably impacted businesses with exports expected to be lower by 14.3 per cent in 2020.”
The worst of the recession is now behind us, said CBB, in reference to information from The Conference Board. The expectation is that the economy will strengthen by 6.7% next year, and by 4.8% in 2022.
Lastly, there is still good news for dealers across Canada: The Conference Board of Canada’s Index of Consumer Confidence jumped 16 points this month to 79.7. That is equivalent to around two-thirds of its pre-COVID-19 mark and a good sign of rising consumer confidence — a key issue that has been impacting consumer moods to buy.
Canadians are still cautious about major purchases, and a recent consumer confidence study does indicate that consumers feel pessimistic about making a major purchase today. That figure is at 57.5%, compared to 54.3% during the peak of the 2008 financial crisis.
“The measurement of consumer confidence is a critical indicator for the prospect of vehicle sales (both new and used) in the coming months,” said CBB. “Having seen some recent improvement is very good news indeed.”
View the full report here.
