How Canadian luxury, exotic sales are weathering the global microchip crisis

Luxury vehicle sales now constitute the last bastion of sales gains in the Canadian new-vehicle market, as mainstream brands — even those that sell pickups — were pummelled during the first quarter.

The Ford F-Series was down a staggering 40 per cent compared with the same period in 2021.

Most premium nameplates — Lincoln, Genesis, Audi and Alfa Romeo, for example — reported sales increases during the first three months of the year, but Ram pickups, the Chevrolet Silverado and the GMC Sierra suffered double-digit percentage declines, a result of the global microchip shortage.

The vast majority of automakers report sales quarterly instead of monthly, meaning the last comprehensive big-picture look at the market was in January.

“[The semiconductor shortage] is affecting sales in the heart of North America,” said Sam Fiorani, vice-president of global vehicle forecasting at U.S.based AutoForecast Solutions (AFS). “Canada appreciates pickup trucks and minivans, and it hit right at the heart of those vehicles.”

The F-Series, for example, has been the best-selling line of vehicle in Canada for 12 years and the best-selling pick up for more than half a century. Because of the continued stress on chip supplies, automakers are routing them to vehicles that have the highest profit margins, more so now than ever.

“They are shifting their priorities to higher-end models,” Fiorani said. “If you only have so many chips, they’re going to go on trucks and they’re going to go on luxury vehicles.

“[Automakers are] focusing on the high-end product at the cost of the low-end product. If [buyers are] in the market for an entry-level vehicle, [they’re] going to take it on the chin.”

LUSTING FOR LUXURY

As for premium vehicles, only production capacity — or lack thereof — can slow that market, said Robert Karwel, senior manager of the Power Information Network at J.D. Power Canada.

“What we know about Canada right now is that demand is high and it’s stable, and demand for luxury cars is quite high. As long as those brands can get their vehicles built and into the market, it’s a good time for luxury brands.”

Factors other than microchips are fueling luxury sales, Karwel said. Some multicar families are trading in one or two vehicles and replacing them with a single luxury model because of less travel and hybrid work arrangements resulting from the pandemic, he said.

The residual value of used vehicles is also changing buying habits.

“We see more non-luxury trade-ins coming into luxury brands as Canadians are wanting to step up to a nicer automobile,” Karwel said.

The value of an average trade-in is up by about $9,000 to $10,000 over the past year, he said April 4.

“That spike in retained value is powering the market,” Karwel said. “It’s providing affordability.”

‘LACKLUSTRE’ QUARTER

Overall, Karwel described first-quarter sales as “lacklustre in performance.”

Sales were down 12.3 per cent to 337,039 vehicles compared with the first quarter of 2021, according to the Automotive News Research & Data Center in Detroit.

March sales totaled an estimated 140,460, down 19.8 per cent compared with March 2021, according to DesRosiers Automotive Consultants, which uses proprietary modelling to estimate monthly sales.

The year-over-year plunge wasn’t surprising, said DesRosiers Managing Partner Andrew King. “It should be remembered that March 2021 was a red-hot month,” he said in a statement. “And the decline of 19.8 per cent seen in March this year was not unexpected.”

March 2021 marked the beginning of the global microchip crisis, vehicle inventory was healthier and it was the first month of post-lockdown activity related to COVID-19 in many of Canada’s provinces.

Much has changed in a year.

“Wherever we look, nowhere do we hear many manufacturers indicating their logistical supply situation is going to be solved,” said Karwel.

The first quarter, he said, “just piled on more difficulties,” including the war in Ukraine and, before that, COVID-19 restrictions in January in Ontario, the country’s largest retail market.

‘CHALLENGES ... SUCCESSES’

Of the 42 brands sold in Canada, 22 posted first-quarter gains, and most of those were luxury or exotic brand names. The five biggest drops in non-luxury sales were experienced by Buick (54.5 per cent), Dodge (49.1), Chevrolet (25.9), Ford (21.6) and Volkswagen (19.8). Only four non-luxury brands experienced gains: Chrysler (53.7 per cent), Mitsubishi (37.1), Jeep (11.4) and Hyundai (7.5).

As a group, GM Canada saw its first-quarter sales plunge 24 per cent to 47,699 units compared with the same period a year ago. However, sales were up 21 per cent over the fourth quarter.

“Our results this quarter demonstrate both the challenges the team has faced and the successes they have delivered despite the headwinds,” Sandor Piszar, GM Canada’s vice-president of sales, service and marketing, said in a statement.

“The first quarter of 2021 was unique, as customer demand in Canada was extremely strong at the same time that we had significant inventory on dealer lots. Since then, the industrywide shortage of semiconductors required us to prioritize production of our most in-demand models.

“Compared to the fourth quarter of 2021, you can see the success GM Canada and our dealers have had getting those models to Canadian customers.”

On March 31, AFS said it now forecasts automakers to sell 1.78 million new vehicles in Canada in 2022.

“Just as the rest of North America continues to deal with low inventory levels and high fuel costs, a turnaround of the Canadian market is not expected before the latter half of 2022 if not next year,” AFS said in its monthly newsletter.

Moody’s Investors Service forecasts that automakers will sell 1.72 million new vehicles in Canada this year. The industry sold 1.66 million in 2021.

It will be “at least the end of 2023” before inventory and incentive spending return to pre-pandemic levels, said AFS’s Fiorani.

“We’re not looking at a quick turnaround. Demand is absolutely there. We’re just waiting for enough backfill to come in to quench all this demand, and it’s just not going to happen soon.”