Canadians sitting on cash savings and looking to spend it on big-ticket items

New-vehicle sales have nowhere to go but up in 2021, however the pandemic’s second wave means it may not be until at least the spring before consumers, sitting on piles of savings, return to the dealerships in droves.

“There was early hope when the vaccine was announced and started rolling out,” said Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association (CVMA), which represents the interests of the Detroit Three in Canada. 

“But the fact is, we’re in a significant second wave. We’re in for a long winter.”

Automakers sold 1.55 million new vehicles last year — the fewest since 2009, which was ravaged by the global financial crisis. Fourth quarter sales, meanwhile, were down almost six per cent compared with the same period in 2019.

Last year’s 20-per-cent slide in annual sales was the second-largest percentage decline on record, falling between the 22.7-per-cent decline of 1982 and the 17.3-per-cent drop of 1954, according to DesRosiers Automotive Consultants.

But a vaccine is now on the horizon, household debt is down and Canadians are saving like never before. Those factors bode well for sales in 2021 — maybe not immediately, but eventually.

SURGING SAVINGS

A majority of Canadians have increased their savings over the course of the pandemic, said Rebekah Young, Scotiabank’s director of fiscal and provincial economics. 

Typically, Canadians save about three per cent of their disposable income. But during the pandemic, they were saving upward of 30 per cent and at last look, during the third quarter, were still saving 14 per cent. 

To put that in perspective, Canadians went into save mode during the financial meltdown of 2008 and 2009 and were socking away seven per cent.

“We would be expected to draw down on that [savings] as the crisis passes,” Young said. “People see a light at the end of the tunnel. People think now might be a good time to buy a car.”

According to the Conference Board of Canada, 52 per cent of Canadians surveyed in December said now is a good time to make a major purchase — which includes homes, cars and appliances. That’s down slightly from November and October but right around where sentiment was in June, July and August, when lockdowns had just lifted.

“Consumers are sitting on cash surpluses — not everyone, of course,” said the CVMA’s Kingston. “So much has been pumped into the economy, there is pent-up savings. So when we do hit that transition point, we might see an aggressive period of growth.”

Scotiabank’s Young said Canadians have also “built in breathing space” for themselves by paying down “bad debt” — credit cards and other high-interest loans. Household debt as a percentage of disposable income is 170 per cent, down from 175 per cent.

THE CURE: VACCINES, VEHICLES

All the math could equal sales — if provincial governments can efficiently roll out a vaccine and automakers can operate assembly lines uninterrupted.

Young and Kingston said the industry is still suffering from inventory shortages, with Kingston’s noting that the ripple effect of last year’s shutdowns is still taking “some time to work out.” 

“It’s working its way through, and it’s going to take a little bit longer,” he said.

Ontario was to remain locked down — meaning appointment-only visits to dealership showrooms — until Jan. 23. Quebec, where showrooms remain closed, imposed a curfew Jan. 9. The provinces are the two biggest retail markets in Canada.

“I’m not too optimistic that we’re going to see the end of this until some point in the spring,” Kingston said. “It’s not impossible to imagine a situation where we’re trying to vaccinate the population into summer. 

“And economic recovery won’t fully take hold until this is truly behind us, until companies see there won’t be further lockdowns, more investments can start being made, and Canadians can go back to their regular behaviour.”

When they do, Kingston wants them armed with an incentive to buy new, green vehicles. He reiterated calls for a national scrappage or cash-for-clunkers program.

“That will kick-start sales and help the government achieve its environmental objectives.” 

FOURTH QUARTER

Fourth-quarter sales were down 5.7 per cent to 396,630, according to the Automotive News Data Center in Detroit. Some brands managed to eek out gains in the quarter. Mazda sales increased 7.6 per cent to 16,139 during the final three months of the year. Kia was 12.3 per cent to 18,519. All but Buick posted gains for GM with Cadillac leading the pack, up 21.6 per cent while Chevy rose 11.8 per cent and GMC 2.9 per cent. And FCA Canada’s total sales were up 4.7 per cent in the quarter. Only Ram and Fiat brands were down, six and 63 per cent, respectively.

DesRosiers Automotive Consultants estimated December sales fell 2.6 per cent from 2019, with the month outperforming November in percentage terms despite the increased restrictions and lockdowns associated with the second wave of the pandemic. 

“December saw a somewhat surprising end to the most unpredictable of years” Andrew King, managing partner at DesRosiers, said in a statement.

December sales are only estimates because the vast majority of automakers have stopped reporting their monthly figures and only do so quarterly.