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January 07, 2021 09:29 AM

Auto recovery expected by Q2's end, if lockdowns subside and vaccines roll out

John Irwin
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    It’s critical that plants such as Fiat Chrysler Automobiles’ factory in Windsor, Ont., continue health and safety protocols — because some auto suppliers wouldn’t survive a second full shutdown, said Flavio Volpe of the Automotive Parts Manufacturers’ Association.

    Industry analysts expect a relatively robust recovery for new-vehicle sales and production at the end of the second quarter of 2021, though the strength and speed of the rebound depends on how quickly and effectively coronavirus vaccines are distributed in the coming months. 

    According to AutoForecast Solutions LLC, annual North American vehicle production was expected to top out at about 13 million, down from the 16.35 million in 2019. The forecasting firm sees production rebounding to 15.95 million in 2021, but AutoForecast CEO Joe McCabe warned that the timing of next year’s recovery is uncertain. 

    “We originally [forecast] a somewhat full recovery from COVID” by mid-2021, McCabe said at the Automotive Parts Manufacturers’ Association’s virtual conference in November. 

    “We’re getting a lot of intel based on the information we use that it’s going to be closer to the end of [the first quarter], and that three month range is going to control basically if it’s going to be a 14.8- or 15.8-million-unit market.” 

    The COVID-19 pandemic threw the North American auto industry for a loop in 2020, shutting down vehicle production for about two months and leading to a sharp decline in demand in the spring. The market showed relative resilience in the summer and early fall, however, as consumer confidence rose and economic restrictions were eased. 

    The latest surge in COVID-19 cases in Canada and the United States has caused governments to reimpose some restrictions. That affected November new-vehicle sales, which were down an estimated 10 per cent from a year earlier, according to DesRosiers Automotive Consultants. 

    VACCINES ‘SEAL THE DEAL’ 

    Peter Hall, chief economist at Export Development Canada, said a cycle of restrictions followed by an easing of those restrictions would be possible if not for vaccines, which he said would “seal the deal” and help Canada return to normal. 

    “If you have an effective vaccine that can be mass-produced, stored very easily and could be distributed quickly, we can all rest much more than we’re resting right now, and activity would normalize,” Hall told the APMA conference. 

    The first vaccines began being distributed in Canada in mid-December, making the country one of the first to begin administering the vaccine, alongside the United Kingdom and the United States. However, the rollout, especially in the auto hotbed of Ontario, has been slower than expected. 

    It will likely be months before most Canadians get vaccinated. 

    A post-COVID-19 recovery will likely be “K-shaped,” Hall said, meaning certain sectors of the economy will recover faster than others. The auto industry could have a fast recovery that would make it “among the stars” of the recovery, Hall said, while other sectors, such as aviation, could take longer to rebound. 

    The North American auto industry has performed relatively well during the pandemic, at least in part because new-vehicle customers have fared better economically than others. Affluent buyers, buoyed by a booming stock market, managed to build up savings. 

    Eric Lyman, chief industry analyst for residual-value forecaster ALG, told sibling publication Automotive News that while higher unemployment usually strangles new-vehicle demand, “the customers that purchase those [new and late-model] vehicles were less impacted than some of the lower-income workers.”

    For auto manufacturers, however, the coming months are fraught with risks as COVID-19 cases increase. Another shutdown could imperil many Canadian suppliers, said APMA President Flavio Volpe. 

    “I no longer worry in a very real sense about a full shutdown,” Volpe said in an interview. “But it goes without saying that a lot of companies’ balance sheets are freshly injured from the first industry shutdown [and] would not be in a good place if we went there again. Some would not survive.” 

    The industry will continue to abide by COVID-19 safety procedures in the coming months to prevent such a scenario, he said. 

    “It’s business as usual, which has worked the last few months,” Volpe said. “Do all the contact tracing and proper separation, then you have no problems.” 

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