COVID-19 Weekly Automotive Market Update 1/12/2021

January 12 2021
CBB

HIGHLIGHTS

New light vehicle sales for 2020 were down by 19.7% as reported last week by DesRosiers Automotive Consultants.
Used Car sales have fully recovered according to the latest data from Statistics Canada, October sales were up by 14.7% from October 2019 and up 220% from the low levels of last spring.
Wholesale Truck values were lower last week by 0.51%, the largest decline since mid-May 2020.
Wholesale Car values declined by 0.67% last week, much steeper drop versus recent weeks.
• The Bloomberg-Nanos Canadian Consumer Confidence Index has now rebounded to pre-pandemic levels.
Employment in Canada fell for the first time since the spring of 2020; the decline is attributed to increased restrictions in many jurisdictions across the country. The decline was -0.3% or 63,000 jobs.
The Canadian dollar posted a new two-year high at $0.7883 last week. Further strengthening of the dollar may slow export demand for used vehicles from Canada to the U.S. market, resulting in lower wholesale prices here.

EXECUTIVE SUMMARY

The month of December 2020 closed at a high point for retained values of 2–6-year-old used vehicles. Canadian Black Book’s Used Vehicle Retention Index hit 111.5 Index points, up 0.8 Index points from the previous record high mark set in November 2020. Compared to the same time last year, the Index is now up 3.1 Index points or 2.9%. The Index is adjusted for seasonality and commenced in January 2005.

The weekly raw value adjustments for Car segments, which are not adjusted for seasonality, declined by -0.67% last week. This is a much larger decrease compared to recent weeks. This change is similar to levels last seen in late May of 2020, when prices were in sharp decline. Truck segments also fell last week, with a decrease of -0.51%. This is also the largest average weekly decline for Trucks since mid-May 2020.

Last week’s Labour Force Survey (LFS) from Statistics Canada reported that employment fell by 63,000 (-0.3%) in December, the first decline since April 2020. Statistics Canada also reported that unemployment remained virtually unchanged, since November, at 8.6%. The LFS noted that the number of Canadians working from home has again increased to 29% in December. These large work-from-home numbers will reduce the number of kilometers being driven, adversely affecting the service/repair aspect of the industry, and deferring the replacement demand for some vehicles.

As COVID-19 vaccinations slowly begin to deploy, consumer confidence is showing improvement. Both the Bloomberg-Nanos Canadian Confidence Index and the confidence index of the Conference Board of Canada showed that consumers now feel as optimistic about the future economic outlook, as they did before the COVID-19 crisis began.

New car sales ended the year down by 19.7% compared to 2019, as reported by DesRosiers Automotive Consultants. The best performers, considering the difficult year, were Genesis at -4.1% and Kia at -5.5%. The weakest results were seen at Infiniti with -47.3% and Jaguar at -41.0%. Many brands were not only hampered by restrictions on operations and uncertain demand throughout the year, but also by interruptions to production and logistics around the world. With restrictions in a number of provinces, as well as continued interruptions to the flow of new vehicles, 2021 is expected to have a slow start, from a sales perspective.

WHOLESALE MARKET OVERVIEW

Price Trends

For the month of December 2020, the Canadian Black Book Used Vehicle Retention Index set a new all-time high at 111.5 Index points. This is up by 0.8 Index points up from the previous record set in November 2020. Compared to December of last year, the Index is now up 3.1 Index points or 2.9%.

As noted in recent weeks, our weekly market adjusted values have been trending downwards, which has been the case for a number of months. However, when seasonality is considered in the analysis, as it is in our Used Vehicle Retention Index, the retained values for 2- to 6-year-old vehicles have been trending upwards. Another way to think about this is to consider that values have not declined by as much as they normally would at this time of year; however, trends are approaching more normal levels this week.

The first full week of market activity for 2021 showed a strong downward trend in prices as shown by the graphic below. (Canada – Weighted % Change in Value by Segment for 2–8-Year-Old Model). The graph clearly shows a downward trend in both Car and Truck prices, from early November. However, the first week of the year shows an even sharper downturn in prices.

Weekly Segment Price Trends: Cars

For the first full week of 2021, the Car segment wholesale prices declined by -0.67%. This is a much sharper decline compared to recent weeks and similar to levels seen in late May of 2020, when prices were in sharp decline. As a caveat, the first weeks or month of a new year are not always indicative of the year to come. Canadian Black Book does however continue to expect slow price declines, in the first quarter.

For last week, all nine Car segments saw deceases resulting in the -0.67% segment decrease. This is the largest weekly decline in Car prices since the week of May 15, 2020. The biggest losses were in the Sub-Compact segment at -1.19%, a segment that has fared poorly over the last year. The second biggest loss was a similar -1.18% decline, for the Near Luxury Car segment. The third largest decrease for the week was in the Mid-Size Car segment at -0.93%.

Weekly Segment Price Trends: Trucks

Trucks also saw a larger negative shift last week, with a decrease of -0.51% in wholesale prices, which is the sharpest decline since the week of June 12, 2020, where a -0.68% decline was seen.

Of the thirteen Truck segments CBB tracks, only three showed very small increases, the largest being a 0.10% increase in the Compact Van segment, which is a popular choice for commercial applications. The largest loss was seen in the Compact Crossover/SUV segment, which despite its popularity fell by -1.38% for the week. This was followed by Minivans, which saw the second largest level of decline, which were off by -1.14% and then Full-Size Crossover/SUV by -1.07%.

Auction News

Wholesale vehicle auctions in Canada continue to run in digital mode only, with potential buyers permitted to visit auction yards (but only in some markets) to review products; however vehicles are sold through online bidding only.

Last week, due to new stringent restrictions in Quebec, our industry contacts are suggesting that operations of wholesale auctions have been adversely impacted, and could last for some time. Timelines for the lifting of restrictions remains uncertain.

This past week our team noted that sales rates fluctuated drastically, from one lane to the next. We noted a high of 94% in one lane, yet at the same auction, in a different lane the sales rate was only 14%. With a number of restrictions in place, it will be difficult for retailers to forecast inventory needs in the early part of the year. It is reasonable to expect more conservative and cautious buying in the first weeks of 2021.

CANADA AND USA WHOLESALE MARKET COMPARISON

Last week, vehicle values in the U.S. market also saw sharp declines. Car segments were down by -0.91% for the week, and the Trucks saw a -0.74% decline to start the year. This marks eighteen weeks in a row of declines for Truck segments, and the largest weekly decline since the week of May 8, 2020.

Car segments’ -0.91% decline marks the nineteenth week of negative adjustments and the largest week-over-week decline since the week of October 9, 2020.

The Canadian dollar remains very strong. In the first week of January, the CDN set a new two-year high mark of $0.7883 on January 6. This is approaching the exchange rate threshold that CBB believes will result in the reduction of the export of used units from Canada to the U.S.

ECONOMICS AND GOVERNMENT

Statistics Canada reported December numbers in its monthly Labour Force Survey (LFS) last week. The study found that employment fell by 63,000 jobs (-0.3%) in December, which is the first decline since April of last year. Numerous lockdowns and restrictions in place are expected to have a cooling effect on job prospects nationally.

Part-time employment fell in December, with larger declines compared to full-time, with a -2.9% decrease. The unemployment rate was 8.6% in December, very close to the 8.5% in November. The LFS concludes that in December, 1.1 million Canadian workers were still impacted by the pandemic shutdown. This is due to a total loss of employment, or reduced hours. The current number of impacted Canadians is much lower compared the 5.5 million impacted back in April.

As the number of COVID-19 cases increased in the fall, the share of Canadians working from home trended up, reaching 28.6% in December. The large percentage of the population working from home is significantly reducing the number of kilometers being driven, which is improving the overall quality of the vehicle fleet on the road.

Particularly good news was noted last week in the Bloomberg-Nanos Canadian Consumer Confidence Index. The sentiment is that most consumers see that the end of the crisis is in sight, which has brought consumer confidence back to where it was before the pandemic, for the first time.

The Bloomberg-Nanos Index increased for the fifth straight week and ended the year at 56, which places it at its highest mark since the middle of February 2020. News over the vaccine rollout has seen consumers perk up in their outlook on their own financial prospects.

RETAIL ENVIRONMENT

New Car Sales

Each January the year-end new car sales results are eagerly awaited. Anticipation this year is perhaps more than any other time in recent history. With a number of OEMs electing to only report sales at the end of each quarter, it leaves analysts no choice but to estimate sales tallies for the industry. This estimation, due to market volatility, was never more difficult to deliver on than in 2020. For the year, sales were down by 19.7% as compared to 2019, according to last week’s report by DesRosiers Automotive Consultants.

Results across the various brands were mixed; results of -4.1% for Genesis and -5.5% for Kia would normally be disappointing, but are to be celebrated in 2020. On the other end of the spectrum are Infiniti, down by -47.3% and Jaguar at -41.0%.

It is noteworthy that the trend for the market to shift to towards light trucks/SUVs/crossovers continues despite all the other market noise. In 2019 the market, according to DesRosiers’s year-end report, was at 75% light truck and 25% car. 2020 hit the 80% light truck and 20% car split. How much lower it can go, in some respects, depends on how many more car products OEMs drop from their lineups. When EVs begin to more widely proliferate in the marketplace, it will be interesting to see how many are in the “old fashioned” car format, or will almost every vehicle be a plug-in active lifestyle vehicle of some sort? Our team would bet on the latter and not as much on the former.

The most recent data on used car sales, from Statistics Canada, captures up to the end of October 2020. The numbers speak volumes about the bumpy ride of 2020. Initially sales dropped by 66%, from February to April, then rebounded up 220% in October. Comparing October 2020 to October 2019, surprisingly saw sales reported to be up by 15% year-over-year. This is a statistical testament to how resilient the retail auto sector can be, when under pressure from all sides. Given the persistent lack of supply for the second half of the year, these numbers are even more impressive.

Retail Supply

Last week we witnessed the volume of vehicles listed for sale in Canada increase again and approach the level of listings seen at the recent peak back in May 2020. Although the number of listings has risen, retailers continue to report they are short of the types of vehicles that are most in demand.

Days to Turn

The rate at which inventory is turning over nationally is starting to slowly increase. This past week saw days to turn hit the 50-day mark, after a prolonged period just below that level. Although much lower than what is typical, this suggests stock is turning more slowly, however this may be influenced by the holiday season slowdown.

FUTURE OUTLOOK

For the first half of 2021, Canadian Black Book expects that many of the forces that influenced the market at the end of 2020 will persist. Regarding new cars, shortages of product, particularly for the most in-demand segments, will continue well into 2021. To illustrate that point, just this past week, it was reported that Fiat-Chrysler will temporarily idle two plants due to a shortage of microchips. One of those plants is the Brampton Ontario plant, which builds the Charger/Challenger/300 sedans. These unplanned pauses in operations are expected to be common in 2021, not only for vehicle assembly and parts production, but also for global logistics.

Although there may be some pent-up demand left over from 2020 due to shortages, it is our projection that the market will remain down by 10% from 2019’s level. This is up 11% from 2020, at 1.71 million units. It is important to remember that although consumer demand is expected to be resilient, especially in the second half of the year, fleet sales, which make up 20% of the industry are expected to be down. Half of fleet business are daily rental units, which have been drastically reduced by the global decline in travel. It is expected that daily rental purchases will only be about 40-50% of their normal level. The fleet decline, shortages of product, and some shakiness of consumer demand are expected to hold the business back in 2021. A full recovery is not expected until 2023.

At the auctions and in the marketplace, CBB expects that used vehicle supply will remain tight for most of the year. Many more vehicles than normal will still be bought up by owners or grounding dealers at lease end, thereby diverting a great deal of stock off of the market. We do expect that auction sales rates will climb in the spring, as dealers cautiously build stock for a spring selling season that hopefully will arrive on schedule. It is also reasonable to anticipate that most Canadian auctions will remain in a digital only format, until a very large portion of the population has been vaccinated, allowing for safe in-lane operations to begin again.

Canadian Black Book forecasts a continued slow decline in wholesale prices this winter, milder than normal seasonal deprecation levels. This will be followed by a more lasting recovery and greater stability of values, depending on the general state of the economy and demand for vehicles. It is our expectation that the Car segments will continue to lag behind in value retention trends, as compared to the Truck segments, which is purely a function of market preference.

Although the Canadian dollar has strengthened greatly in the latter part of 2020, there remains considerable profit to be made by export arbitrage. Export volumes may decline in 2021, but it is expected that a large enough volume of Canadian units will flow south to help keep Canadian prices reasonably strong. A greater effect on exports may prove to be the U.S. economy and how much stimulus the new administration provides to households adversely affected by COVID-19.

About Canadian Black Book

For almost 60 years, Canadian Black Book has been the trusted and unbiased Canadian automotive industry source for vehicle values. Today the company has grown into a leading data provider of vehicle valuations, residual value forecast solutions and VIN decoding. Canadian Black Book tools and information are considered ‘The Authority’ for vehicle values not only by car dealers and manufacturers, but also the leasing, finance, insurance and wholesale sectors.

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