New-vehicle sales in Canada staged a rebound in June that has industry analysts pointing to a faster-than-expected recovery from the depths of the economic crater left by COVID-19.
Overall sales fell about 16 per cent in June from a year earlier, according to DesRosiers Automotive Consultants (DAC) estimates. That followed estimated declines of 44 per cent in May and 75 per cent in April, the first full month of the crisis.
“It’s a good-news-bad-news story,” said Rebekah Young, Scotiabank’s director of fiscal and provincial economics. While second-quarter sales dropped 45 per cent, “the good news is we’re on the other side.”
The market took “a big step forward on the climb out of the abyss,” said Dennis DesRosiers, head of DAC.
“June undoubtedly saw the release of some pent-up demand into the market as blinking consumers took their first tentative steps out of their darkened lockdown basements and back onto the sun-kissed roads and highways.”
Young said the rebound, “was faster than economists had anticipated for the lockdown.” Quebec and Ontario completely shut down dealerships for weeks early on, affecting thousands of stores in the country’s two biggest markets.
“Even six weeks to eight weeks ago, most forecasters were expecting the lockdown to last longer and take longer to tamp down the pandemic,” she said.
FLEET SALES TAKE A BEATING
Young said that fleet sales, not higher-margin retail sales to individual customers, have taken the biggest hit.
According to Scotiabank, fleet sales typically account for 20 to 25 per cent of the market. They were down 80 per cent year over year at the height of the pandemic, Young said, and remain down about 60 per cent.
“Nobody’s traveling and a lot of rental business comes from airlines. That’s going to be a slow recovery,” Young said. “Fleet for business purposes will have a slow recovery as the full impact of the crisis really hits.
“Retail has really experienced the rebound.”
J.D. Power Canada, which tracks retail sales on a monthly basis, said they continued to rebound in June.
“June retail wasn’t bad at all, we estimate it was down 21 per cent, which is great compared to May and April,” Robert Karwel, senior manager of J.D. Power Canada’s Power Information Network, said in an email.
“I think the main thing is we witnessed more of a return to how retail looked pre-pandemic.”
Karwel noted the improvement in a July 9 report entitled “Canadian New Vehicle Retail: The June 2020 Landscape.”
“Mainstream dealers are holding their own, and are as profitable as they were last year, at least in June,” he wrote.
At Hyundai Canada, June retail sales were up seven per cent compared with the same period in 2019. While the brand’s overall, second-quarter 43.4-per-cent sales drop is in line with the rest of the industry, Hyundai Canada CEO Don Romano said retail sales rose despite lower-than-average incentive spending.
The company, he said, was already making an aggressive move away from fleet sales — down 69 per cent for the year to date — and adapting the Genesis online sales platform in ways that allowed Hyundai dealers to transact more effectively with customers despite mandated physical-distancing measures.
“Most companies that do fleet [sales], if they’re being honest, they’re realizing that the real business is the retail business, where you can cultivate long-term relationships with customers,” Romano told Automotive News Canada. “When people are renting cars, they aren’t really looking for that specific brand and the specific features and benefits that you put into that product.”
Scotiabank’s Young said an emphasis on retail offers other sources of revenue — service, financing and more — that can strengthen the bottom line.
PENT-UP FALL SALES?
She also thinks that some lingering pent-up demand and fiscal savings remain in the marketplace. Both might lead to more purchases in the summer and fall.
Scotiabank estimates that the aggregate amount of money distributed to households so far through the Canadian Emergency Relief Benefit (CERB) — a $2,000 monthly stipend to those who lost their jobs during the lockdown — was greater than the total that would have been taken in through full employment during the same time.
That — coupled with people working from home, collecting more money, curbing discretionary spending and not having entertainment options — means people have more savings.
“Typically, when households save, they’re worried about the future,” Young said.
But everything economists learn in school and throughout history doesn’t necessarily apply during a pandemic.
“Households have weathered the crisis. Now they’re ready to spend,” Young said.
Automakers, she said, will sell 1.5 million new vehicles in 2020, but her forecast comes with a caveat.
“We’re still not out of the woods yet.”
STIMULUS PLAN NEEDED
Sales might also receive a fall bump if the federal government boosts its stimulus, which Young expects to happen.
CERB, she said, “wasn’t stimulus. It was trying to keep Canadians whole.
“The government needs to think of a recovery plan. They had a pandemicresponse plan. They haven’t done anything about stimulating the economy.”
A federal budget could include anything from electric-vehicle infrastructure and EV purchase incentives — both of which align with the Liberals’ green agenda — to a broader stimulus package that will keep people spending, Young said.
So far, the majority of spending has been driven by the lockdown, she said. “It’s hard to know what that [spending] will be six months from now.”
With files from Stephanie Wallcraft.