The COVID-19 pandemic has devastated Canadian auto dealerships, the vast majority of which have laid off employees and seen massive drops in revenue, according to a survey released today by the Canadian Automobile Dealers Association (CADA).
“Just as dealers across the country should be entering the peak season, where Canadians are most likely to be out shopping for new vehicles with the latest safety and environmentally advanced technology, the retail auto sector is reporting its most severe decline in history,” CADA CEO Tim Reuss said in a statement.
The coronavirus outbreak has brought the Canadian auto industry to a virtual standstill. New-vehicle demand has plummeted and vehicle production has stopped as governments urge non-essential workers to stay home and prevent the spread of the virus. New-vehicle sales in March fell by 47 per cent from a year earlier, according to Scotiabank, as consumers stayed home and large swaths of the Canadian work force became unemployed.
The survey found that 96 per cent of dealerships have issued layoffs to their staffs, with 78 per cent signalling they’ve laid off 10 or more employees.
The CADA survey was conducted between April 3-9 and had responses from 862 dealers that represent more than 1,600 dealership rooftops nationwide, according to the association. CADA represents more than 3,000 members.
SERVICE REVENUE DOWN
Eleven per cent of dealers said their stores were completely closed due to the pandemic, while half of the respondents closed their on-site sales operations. Those numbers likely are higher today as the survey was conducted before the Ontario government declared dealer showrooms to be non-essential businesses and temporarily shut down.
While 77 per cent of dealers have kept their service and parts departments open to continue essential repairs and maintenance work, revenue from those crucial departments has plummeted at many dealerships. About 40 per cent of dealers said they have seen a decline in service and parts revenue of at least 50 per cent.
Reuss, speaking with Automotive News Canada, said Quebec dealers could see a boost in service and repair revenue beginning on Wednesday. He said the Quebec government in recent days has worked with the provincial dealers association, the Corporation des concessionnaires d’automobiles du Québec, to develop health and safety protocols that, if enacted, would allow dealers to open bays for more services beyond only emergency repairs.
While service would be by appointment only, the new rules could benefit Quebec dealerships’ bottom lines as customers swap out their winter tires as the weather warms up, Reuss said.
“Dealers are storing the tires for their clients, and yet they were not able to switch them over because it wasn’t deemed to be a critical repair,” he said. “That’s been corrected.”
ELIGIBLE FOR RELIEF
Overall revenue has plunged at the vast majority of dealerships, with 87 per cent of respondents saying they have seen a decline in revenue of at least 30 per cent. Those dealerships would qualify for the federal government’s $73-billion wage subsidy program, which Parliament passed on April 11.
The wage subsidy program covers businesses whose revenue has fallen by 15 per cent in March or by 30 per cent in April or May. Those businesses, including dealerships, would be eligible for federal support of up to $847 per employee per week. The program is retroactive to March 15.
BLEAK SALES OUTLOOK
The federal aid comes as automotive retail was likely to be decimated in the coming months due to the pandemic. Canadian Black Book has forecasted an annual new-vehicle sales decline of between 25 and 40 per cent compared with 2019, depending on the severity of the recession.
Economists and analysts who have spoken with Automotive News Canada cautioned that new-vehicle demand could remain low even after some stay-at-home orders and social distancing guidelines are eventually lifted. For instance, Robert Karwel, J.D. Power’s senior manager of automotive practice in Canada, warned of a possible “multi-year sales depression” even if the economy as a whole bounces back somewhat quickly.
“People got spooked this year and they may just delay” vehicle purchases for a year or more, Karwel said.
Dealers have begun to grapple with what the future might hold. Newel DeSouza, general manger of Maranello BMW in Vaughan, Ont., said he is beginning to turn his focus to the coming weeks and months and expects his store to employ fewer people. The dealership, which typically employs more than 100 people, currently has about 16 employees working after its showroom closed and its service department reduced its hours.
“Certainly, [the future] is going to look like it has less employees,” DeSouza said. “It doesn’t matter because the government relaxes certain requirements that the market is going to say, ‘Hey, look, we’re here to buy again.’ So that’s going to look different.”
MORE HELP SOUGHT
Dealers are looking for more federal and provincial government assistance to boost liquidity, the survey found. According to the CADA, dealers signalled support for measures including property tax deferrals, the waiving of harmonized sales taxes on vehicle sales over the next three months and interest-free loan programs.
“Dealers have made it clear they appreciate the numerous programs that have been announced so far to help support employees, but the survey results show how deeply the sector is struggling financially,” Reuss said in a statement. “We need additional business supports – mainly liquidity – to help dealers remain viable and continue to play a pivotal role in their communities during this crisis.”
Reuss said the CADA would conduct another survey in two weeks. He said it would include questions pertaining to dealership liquidity and whether dealers are getting relief from lenders.
“We’re going to monitor that and be able to engage from a factual perspective whether dealers will be able to get relief from their captives or not,” Reuss said.
