Dealers are pushing the federal government to underwrite job-loss insurance, a measure that proponents said would boost consumer confidence during the economic crisis and allow the industry to sell more vehicles.
“The power of the idea is that there’s a federal backstop, which makes it interesting because it can be applied across the board, across brands for the market as a whole,” said Tim Reuss, CEO of the Canadian Automobile Dealers Association (CADA).
Having the government underwrite job-loss insurance would help to boost consumer demand, Reuss said, because it could take away some of the anxiety they might have when deciding whether to purchase a vehicle. Consumers worried about being laid off could feel more confident about buying a new vehicle knowing that insurance would cover payments should they lose their jobs because of the pandemic.
It’s one of several ideas being pushed by CADA, which also wants Ottawa to enact a sales tax holiday for vehicle purchases and introduce a vehicle scrappage program, Reuss said.
“Obviously, now is not the time to implement something like that, but it’s definitely the time to discuss, design and evaluate,” Reuss said.
Boosting job-loss insurance, which covers vehicle payments for those who become unemployed, will be critical for the industry, said Michael Carmichael, an Ontario dealer who has spearheaded the federal underwriting plan in recent weeks. Getting the government involved would be necessary, he said, because traditional underwriting for job loss insurance is generally unavailable now due to risk-tolerance exclusions for pandemics.
MASS UNEMPLOYMENT
The fund “ultimately replaces the traditional finance sources for job-loss insurance because it’s just not available right now,” said Carmichael, who is the CEO of the UPAuto group and owns three new-vehicle dealerships around Stratford, Ont.
The proposal underscores the challenges that lie ahead for dealers and automakers once provincial governments and health authorities deem it safe to re-open the economy. Mass unemployment and reduced wages are likely to weigh on consumers’ minds, potentially leading many to delay new-vehicle purchases, according to some economists.
Carmichael outlined the proposal in a March letter to Prime Minister Justin Trudeau and said he discussed the issue with Deputy Prime Minister Chrystia Freeland’s office.
The insurance program would be managed by the same local insurance brokers and dealers who currently manage job-loss insurance, he said. That would help to make the program more cost effective over the long run than many other economic programs designed to boost the economy, he argued.
“It’s not a one-time discount or rebate,” Carmichael said. “This could be very cost-effective versus just dumping money on the balance sheets of multinational corporations.”
Asked if the government was considering the idea, Freeland’s press secretary, Katherine Cuplinskas, said in a statement that the government is speaking with “many stakeholders on an ongoing basis” in an effort to “understand how we can best support Canadians” during the pandemic.
“We are working hard to support Canadian workers and businesses, including the automotive sector, during this unprecedented time of crisis,” she said.
Carmichael, who launched a website, http://confidentcanadians.ca, which is dedicated to promoting the idea, said not all the feedback he has received from dealers has been positive. Some are concerned about government overreach and getting Ottawa unnecessarily involved in the private sector.
A DIFFERENT CRISIS
But he said he and other dealers believe this economic crisis will require a different approach since consumer confidence is likely to be shaken in the long run as fears about public health persist, even if companies survive the economic shutdown.
“As I look back on 2008-09 [recession] … there was this desire to let the chips fall where they may, a more traditional, laissez-faire economic ideology,” Carmichael said. “But I think what everyone has learned going through that is that the old principles do not apply to today’s challenges because the dynamics are so different.”
He said creative solutions to help dealers selling vehicles could help get the auto industry back on its feet. That will prove crucial to improving Canada’s overall economic fortunes over time, given the many jobs that are tied to the sector.
“We’ve got to start selling cars, because as soon as we clear cars off our lots, that means we can order more, which means [automakers] can ship more cars, which means they can build more cars, which means they can build more parts, order more paint, order more supplies and help the restaurants that feed those people,” Carmichael said.
