New vehicle sales should start picking up in May, but “we’re not out of the woods, yet,” according to Scotiabank Economics.
“Consumer confidence is beginning to pivot — albeit from steep troughs — while a reversal in massive job losses should begin as businesses re-open,” the financial institution said in its latest Global Economics Insights and Views report.
“There should be some pent-up demand as the recovery takes hold,” the report read. “In the meantime, an uptick in servicing offers a boon to dealerships.”
Rebekah Young, Scotiabank’s director of fiscal and provincial economics, said that based on early signs, May will be “a little bit better than April.”
New-vehicle sales plunged 75 per cent as governments in Ontario and Quebec forced dealerships to close as part of effort to keep COVID-19 at bay. The two provinces combine for 80 per cent of the new-vehicle market in Canada.
Young is now forecasting Canadian new vehicle sales to be off by 30 per cent, about half as bad as she first predicted at the end of March, when the pandemic really began to cripple the economy.
Provinces, including Ontario, are starting to slowly restart their economies.
“And if we stay on this trajectory June will be even better,” Young said.
But a lot depends on consumer confidence.
“We still need to see what’s happening with jobs. That could put a damper on it all,” Young said.
About two million Canadians were out of work through April and much of new-vehicle financing is based on proof of employment.
“There have been some signs of encouragement, but we’re still not out of the woods, yet,” she said.
Young said two factors will influence sales: Where the jobs number goes and how people feel.
“People save when they think things might get worse,” Young said.
Consumer confidence is showing signs of improving in Canada after weeks of record lows from business shutdowns and strict social distancing measures.
The most recent Bloomberg Nanos Canadian Confidence Index, a composite gauge based on weekly telephone and online polling last published on May 11, ticked up slightly to 38.73 in its second-straight gain after more than two months in free fall. While the index remains near its worst-ever reading, the slight rise in confidence suggests that negative sentiment may be plateauing amid talk of reopening the economy.
An April poll by CarGurus in Canada suggests only six per cent of consumers who had planned to purchase a vehicle in 2020 have put their plans on hold indefinitely. Meanwhile, 16 per cent who had not originally intended on purchasing a car in 2020 now expect to do so. However, 87 per cent of respondents expect to purchase later than they initially planned.
Young said that Canadians “need to feel really optimistic in their job” before they make bigger purchases, such as a car. And she believes “we’ve seen a bottoming out” when it comes to job loss.
“It can’t get a lot worse,” she said.
Still, 88 per cent of Ontarians are worried about the economy, with 50 per cent being very worried, according to a business confidence survey from Campaign Research Inc., Market Research Firm. The survey was commissioned by the Ontario Chamber of Commerce , Automotive Parts Manufacturers’ Association, and Ontario General Contractors Association.
Twenty four per cent of respondents in that survey are concerned about maintaining a vehicle. However, 52 per cent are not concerned about being able to pay to maintain their vehicle or make the payments.
Young said that employment insurance, the Canadian Emergency Relief Benefit and federal subsidies for businesses have “been really effective” and “have been covering essential costs” for Canadians.
“When they get their job back, they shouldn’t be in as big a hole as they would have been,” she said.