Continuing shortages of new vehicles have now put Canada’s spring selling season in doubt, jeopardizing a hoped-for sales rebound in 2021.
The information coming from manufacturers and suppliers is that inventory might not normalize until June or July, well after the traditionally busiest time of the year, said Tim Reuss, CEO of the Canadian Automobile Dealers Association (CADA), which represents the interests of about 3,200 franchised dealers across the country.
“Even if [more vehicles] do become available, you can’t make up for it in the last three or four months of the year,” said Reuss, who expects annual sales will remain flat at 1.5 million. Industry forecasts in December had pegged 2021 sales at about 1.8 million units.
February sales of passenger cars and light trucks totaled 112,654 units, down 10 per cent from the 125,059 units sold in February 2020, according to estimates from DesRosiers Automotive Consultants (DAC). Year to date, sales are down 13.4 per cent to 203,544 units, according to estimates by DAC.
While January and February are typically slow months, global auto plants, particularly those in North America, have yet to recover from sporadic pandemic-induced lockdowns that have plagued the industry for a year.
As well, no end is in sight to a global microchip shortage that has some automakers building incomplete vehicles and leaving them in lots waiting for the critical parts to arrive. To make matters worse, a shortage of seating foam — caused by a lack of propylene oxide, needed for the polyurethane — looms large.
Steve Chipman, CEO of Winnipeg-based Birchwood Automotive Group, said he could have sold twice the number of vehicles he did at some of his stores in February, if he had the stock.
“People have money, people want to spend money, but there’s nowhere to spend it. You see the opportunity, you want to fill their demand, and you want to keep customers happy, and you can’t.”
Chipman’s dealerships are taking preorders, but those placed in early March probably won’t arrive until at least April.
“And they’re already sold,” he said. “It’s like the old days, when Honda and Toyota took off and people were lined up to buy cars.”
While Scotiabank Economics said it is sticking with its forecast of 1.8 million vehicles, it issued a warning in early March, saying the inventory problem “represents a material risk to our 2021 sales outlook” and could erode new-vehicle sales by five to 10 per cent over the next few months.
‘MARGINS HAVE GOTTEN BETTER’
Despite the uncertainty, Chipman said, he and fellow dealers are thriving.
“Everybody’s margins have gotten better. Dealers have rightsized. [They] have learned how to operate with less cost. I don’t think anyone is panicking.
“You won’t see incentives. The price of cars is holding better margins because there are fewer cars. It’s the supply-and-demand ... of Economics 101.”
Scotiabank said new-vehicle price inflation continued its upward trend in February, rising 2.8 per cent compared with overall inflation of one per cent in January. And according to DesRosiers Automotive Consultants, higher-margin light trucks comprised 83.5 per cent of all February sales.
Andrew King, managing partner at DesRosiers, said the seasonally adjusted annual rate (SAAR) of sales came in at 1.84 million units. That means that if February’s sales pace continued in each of the next 10 months, dealers would sell that number of vehicles in 2021.
And with February being the last month of normal comparables with 2020 — as March 2020 was the first month sales were affected by COVID-19 — the SAAR is the important number to watch in 2021, King said.
He called it “a variable to which we will be paying even closer attention in the coming months, as year-over-year comparisons become less meaningful” because sales will be compared with months of lower sales due to the pandemic.
‘INVENTORY IS EVEN TIGHTER’
Low inventory could force customers to buy something other than what they initially wanted, said Rebekah Young, director of fiscal and provincial economics at Scotiabank Economics. But the more likely scenario is that it would push pent-up demand later into the year.
That doesn’t help in the short term.
“Inventory is even tighter, certainly in domestic [brands], but it’s tight all over the place,” said Birchwood Auto’s Chipman, who first noticed the problem in October.
Inventory of the most popular vehicles at his dealerships is down about 75 cent for the first two months of the year compared with the same period in 2020. Total inventory, he said, was down about 25 per cent in early March. He had about 60 days of inventory overall but only about 20 days’ worth of the most popular vehicles, such as pickups.
February “was a decent month,” Chipman said. “We’re down a little bit over last year, but we’re up in used. Overall, we’re on budget.
“We just got through the dog days of the car business. January and February are the two toughest months. But March is here, and it’s warming up.”
The CADA’s Reuss couldn’t say when dealer lots would once again be brimming with stock.
“Relief probably will be coming, but will it be in time for summer? It’s very difficult to predict at this point in time.”