Pickups, utility vehicles and vans are on track to make up 80 per cent of new-vehicle sales in Canada this year, propping up prices and gross revenue for dealerships. Through the first nine months of 2020, light trucks accounted for 79 per cent of all new-vehicle sales compared with 74 per cent a year earlier, according to the Automotive News Data Center in Detroit.
But the pace has accelerated. Of all new vehicles sold during August, September and October, 80 per cent were light trucks, according to J.D. Power Canada. In October, light-truck sales rose to 82 per cent, leaving just 18 per cent of the market to passenger cars.
“As we go deeper into the year, [truck demand is] still accelerating,” said Robert Karwel, senior manager of automotive for J.D. Power Canada. “Canadians can’t get enough of anything that’s utility or pickup.”
The shift “ultimately it’s consumer driven,” Karwel said.
He pointed to the late FCA CEO Sergio Marchionne as being ahead of the curve when he killed off the Chrysler 200 and Dodge Dart.
“Sergio was very prescient when he figured they needed to stop building Darts and 200s and make space for Jeeps,” Karwel said. “He was sitting on brands that specialize in trucks and Jeeps, and they make so much money on trucks.”
Low interest rates and longterm loans also make it easier for people to afford higher-priced trucks and utility vehicles.
“The retail performance of auto is pretty strong, and that’s putting it mildly. As a dealer, you might be making more revenue on fewer sales because prices have gone up,” Karwel said. “Prices are up because our data shows us it’s almost entirely because of a drop in incentive spending.”
October’s total new-vehicle sales were down an estimated 2.1 per cent to 156,095 compared with the same month last year, according to DesRosiers Automotive Consultants Inc. (DAC) while Scotiabank estimated sales were down 2.5 per cent.
Of total sales, 53 per cent were utility vehicles, and 24 per cent of all vehicles sold were crew-cab pickups.
While the average gross margin on a sedan in October was $1,400, it was $1,900 on a utility vehicle and “in the high-$2,000 range” for pickups, Karwel said.
“So, you can sell fewer vehicles because you’ve richened the mix. You’re still doing fine, if not better off, as a dealer.”
Overall, the average transaction price for vehicles sold in Canada for the year, through September, was $38,000, up seven per cent over the same period in 2019, said J.D. Power.
Automakers have pulled back on incentives in each of the last four months, Karwel said.
Of the automakers that continue to report on a monthly basis Toyota, Hyundai, Kia and Subaru all posted gains during October, with
Subaru and Kia generating the biggest increases, up 12 and 19.4 per cent to 6,319 and 7,460 sales, respectively.
Kia Canada COO Elias El-Achhab said in a statement that “2020 has certainly had its challenges,” but the arrival of the Seltos subcompact crossover and the K5 sedan — along with ample stock overall — has led to increased sales, he said.
Ken Maisonville, director of national sales at Hyundai Canada, said the automaker is “starting off the fourth quarter stronger than ever” with the new 2021 Elantra, which began arriving at dealerships in October. The updated Santa Fe arrives in December.
“Despite increased COVIDrelated restrictions in certain provinces, and supply-chain shortages of select high-demand vehicles, the market managed another strong performance in October,” Andrew King, managing partner of DAC, said in a statement.
STRONG ...FOR HOW LONG?
Rebekah Young, Scotiabank’s director of fiscal provincial economics, said in an email that several factors continue to drive auto sales.
“It looks like we have a combination of some pent-up demand still working through the system, possibly some fleet sales, particularly commercial fleet coming back online now, but also potentially new buyers from pandemic-induced fears.
“We also had the new Canada Recovery Benefit come online in the first week of October which effectively reset the clock for claimants that may have exhausted employment benefits under [the Canadian Emergency Response Benefit].”
CERB ended Oct. 3 and the Canada Recovery Benefit, which provides $1,000 ($900 after taxes) every two weeks, paid out $1.48 billion to more than 917,000 individuals between Oct. 3 and Oct. 30.
Scotiabank said it maintains its sales forecast outlook of 1.6 million units for 2020, “with still some potential for volatility in the final stretch.”
It’s unknown whether there is any remaining pent-up demand, Karwel said.
“There’s a theory that September was the calm before the storm.”
September sales “were driven by this lease bubble and that’s largely over.”
“All the lease extensions got pushed out to July, August and September and they’re now gone,” he said. “And if that’s the case, are we going to see [sales] numbers fall off handsomely in November and December, or we’re going to see consumers come back [to dealerships]?”