Never at a loss for words, Canada’s best known automotive analyst Dennis DesRosiers said he’s struggling to accurately predict the economic impact of the COVID-19 virus, and more specifically how it will affect employment in the sector and vehicle sales. He said it will be a sharp decline, with as many as (if not more than) 400,000 fewer new vehicles sold this year. But the picture is much more complex than just vehicle sales.
“The fundamental issue that everybody who is trying to come up with an impact statement related to the COVID virus, is that we don’t know how deep it’s going to affect the economy or how long it’s going to affect the economy,” said Dennis DesRosiers, President DesRosiers Automotive Consultants.
DesRosiers said his current modelling is based on trying to calculate the impact on a weekly basis. “I’m trying to come up with the number of vehicles affected per week and the number of jobs affected per week,” he said. “Then you can monitor it from there. If you are a believer that this is going to be a 10-week process, and we are already into our third week, then you take my numbers and multiply them by ten.”
“While we are shut down from a society point of view, call it social distancing, call it isolation, call it being housebound — the auto industry is going to be down somewhere in the 70-80 per cent range,” said DesRosiers. “On an annualized basis, that means that 20-30 per cent of the industry will be gone. On a new vehicle basis, it’s in the 400,000-unit range if this lasts a full 10-12 weeks.”
He said if you are more pessimistic, then you can multiply the weekly numbers by 20.
“The analyst community never anticipated the degree of the collapse. Most of us have thought we were peaking and that the last two years have been soft, but that it was a manageable downturn, down 3 or 4 per cent the last couple of years. Nobody thought it would collapse to the degree that it has,” said DesRosiers. “That has made it difficult to forecast, there’s no doubt about that.”
DesRosiers said the critical factor that drives new and used vehicle sales and business in the aftermarket and repair industries is kilometres driven. With Canadians isolated at home, vehicle usage had dropped off dramatically. “Kilometres driven in Canada and across all of North America have collapsed,” he said.
Canadians typically drive about 500-600 kms a week, and for the past few weeks that number is down to less than 100 kms a week. “When you are not driving your vehicle you don’t need to have it repaired, you are not wearing it out, it’s not becoming less mechanically sound and you are not in the aftermarket fixing it and you aren’t in the used vehicle market getting rid of your old one, or moving up to a new one,” he said.
DesRosiers said because Canadians aren’t driving during the pandemic, the demand for vehicle sales lost during this period won’t be recouped, because usage is not driving down the condition of vehicles.
During an economic crisis, he said politicians tend to focus on the 200,000 manufacturing jobs in the auto sector, but they tend to overlook the other 600,000 to 700,000 jobs in the industry — the people who sell, service, and finance vehicles for example.
The impact of the drop-off of kilometres driven will dramatically affect those 600,000-plus jobs, he said.
DesRosiers said that while there has been a lot of focus on the impact of the pandemic on industries like cruises, restaurants and hotels, the auto sector is bigger. “Not to discount how devastating this is on those classes of industry, the auto sector is, whether we like it or not, probably leading us into economic difficulties, and at the end of the day, will have to lead us out of the economic difficulties.”
Another factor that is emerging is whether the attitudes of Canadians towards personal use vehicles has changed. “Who in their right mind would want to get into an Uber vehicle, or a Lyft vehicle, or even take a bus or a subway or any public transportation. You have to wonder why anybody would want to do that.”
DesRosiers, said he expects, at least in the near future, for demand for ride sharing to decline. “There’s going to be a lot of concern for ordinary Joe Blow Canadians or Americans about getting rid of their private transportation,” he said, adding that more people will want to be assured the vehicle is clean, and know who used it previously.
Some demand continues regardless
DesRosiers said that even if the economy is in sharp decline, there remain some groups that will still need to be active in the new or used vehicle market. That includes the 600,000 Canadians whose vehicle leases are set to expire this year.
“It’s very difficult to extend a lease,” said DesRosiers. “Those 600,000 consumers at the end of a lease are in a difficult spot. If your lease expires this week, whether you like it or not, you have to trade that vehicle in. You are without transportation. Period. You can’t even get to the grocery store,” said DesRosiers.
Other groups include those whose vehicles are damaged in accidents or are scrapped. “Those consumers are in a very difficult spot,” said DesRosiers. “If they don’t replace it then they don’t have any personal use transportation.”
DesRosiers said he hopes society and our industry learn from this pandemic and are better prepared for the next one.
He also expects dealers to push back against any big CapEx initiatives like factory image program enhancements during this downturn.
