A look back at the year that was, and a look ahead at what dealers can expect in 2024 for vehicle sales.

As we rapidly approach the end of 2023 and the start of a brand-new year, I thought the moment was right, once again, to go over the major economic trends surrounding our industry. Many of you are looking ahead at 2024 with a lot of optimism, hoping to build on the business momentum observed over the last few months.

Indeed, the last year has been extremely productive for automobile dealers across the country. The increase in sales was not only significant, but it was sustained! In fact, the auto retail industry managed to string together 12 straight months of positive sales compared to the year before.

This was possible because a lot of things have occurred at the same time that are, generally speaking, good for automobile dealers: demand remained relatively strong, manufacturers were able to provide dealers with the most sought-after models and buyers weren’t being entirely deterred by the current environment where high interest rates are the norm.

DesRosiers Automotive Consultants have also recently presented an extremely interesting nugget of information: the year 2015 is the last time where we saw something similar in terms of sustained year-to-year growth in automotive sales. At that time, the month of November saw the end of a 32 month growth streak.

This positive development also isn’t tied to one or two major economic regions, sales growth has been shared across provinces over the last 12 months. More often than not, sales increases observed in Ontario or Quebec do not necessarily translate to the smaller markets like the ones in Atlantic Canada. Usually, lack of supply dictates the dealership’s ability to meet demand which results in fewer sales than other bigger provinces.

Well, if we take September for example, that narrative has been flipped entirely with PEI showing an increase of 39 per cent year-to-date in new light vehicle sales. Nova Scotia recorded a 28.6 per cent increase and Newfoundland, while having the smallest sales increase of all Canadian provinces, still saw a 10.3 per cent increase for the year.

There are multiple variables that could explain this, but it is obvious that manufacturers have been progressively catching up in terms of overall production. There are even specific brands production targets that overshot the current market demand, resulting in more inventory being spread out across smaller markets.

Now, the real question is if we can expect this momentum to be sustained over the first half of the upcoming year? Well, underlying indicators seem to point to the fact that our economy is in a tip of the iceberg scenario and that a severe downturn is still very much in play.

The National Bank of Canada produced a report where it was determined that 43 per cent of the interest rates hikes still haven’t been felt on current consumption. As the effects of interest rate hikes keep being more apparent on consumer paychecks, important budgeting decisions will have to happen and this could very well reduce consumers’ interest in purchasing a new vehicle.

Many economists have been predicting such a scenario for months now, but we now have quantitative and Canada-centric data on the delayed effects of interest rate increases. When sales numbers are as positive as they have been recently, there is a risk for a disconnect to happen between economic forecasts and what is being observed on the ground. Automobile dealers have to be wary of that and plan ahead with a proper understanding of how — and when — interest rates can affect consumption.

Data also shows that Canadian retail sales in real terms have generally been going down since the start of 2023 with the sharpest sales drops occurring over the last five weeks.

While the auto retail industry has benefited from pent-up demand accumulated over the period where inventories were practically non-existent, it is fair to assume the auto market could quickly readjust towards a more balanced state where supply levels keep increasing and consumer demand stalls.

Finally, the Canadian economy has recorded a quick increase in unemployment rate of almost one per cent since Q2 of 2023 — which also should be seen as another factor driving demand and retail sales down.

This past year was a much needed one as there was shared impatience between auto dealers and consumers regarding the lack of inventories. The increased vehicle production allowed automobile retailers to catch-up and meet this pent-up demand. This positive sequence of events, however, has generated a short-term sales bubble for our industry that could start its deflation as early as Q1 or Q2 of 2023.

Being informed on the evolution of the market through quantitative economic forecasts will be crucial for automobile dealers that want to make decisions and plans ahead of this downturn instead of being caught in a tough situation after months of positive sales results.

REFERENCES

1  DesRosiers Automotive Consultants, Provincial Sales September 2023

2  National Bank of Canada, Canada :
Signs of weakening labour market continued in October, 2023

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Exploring some of the key findings from CADA’s first-ever Data Report.

A few months ago, CADA published its first annual Data Report for the year of 2022. The goal of this report was to gather — in one place — some of the most important economic insights we have on auto dealerships in Canada.

With the current economic situation, there is a building interest behind the market and the financial mechanics driving the entire automotive industry in Canada and in North America.

While some of you might have read this report, I thought it would be interesting to go back over some of the more insightful and interesting tidbits that CADA uncovered and analyzed. We will also come back next year and compare these results to see if there are any trends that auto dealers and consumers should be aware of.

I want to touch on the financing and leasing side of dealership activities. The reason why is simple: by far the piece of information from the CADA report that generated the most media interest was the dichotomy between the general decrease of leasing percentage over the years with the steady increase of the average interest rate.

Indeed, consumer leasing of new vehicles has moved from almost 32 per cent in 2018 to less than 23 per cent in 2022 while the average interest rate has doubled over that time.

Many consumers, much like dealerships, are feeling the pressure from multiple sides and have had to make decisions negatively affecting other areas of their debt portfolios.

For a lot of journalists involved in the auto sector, high interest rates should drive leasing percentage as consumers get weary about purchasing vehicles in this increasingly difficult economic context.

In fairness, next year’s data could align with this assumption but it is also evident that the late 2022 and early 2023 market has been warped and distorted by a cumulation of many variables such as: a higher saving rate than pre-pandemic, uncertainty about where interest rates are going, consumer impatience after a severe supply shortage, low inventories for used vehicles, etc. This unique combination of factors had led consumers to act in a way that might very well be, to some, counterintuitive.

On the other hand, there is also a lot of data on financing and leasing for 2022 that corroborates a more common and widely shared understanding of the market: vehicles have become more expensive since the pandemic and interest rates hikes are starting to have an effect on many consumers.

The average loan term in months has grown since the pandemic by almost four more months and, during the same timeframe, the average amount financed went from $42,359 to $53,023.

The costs of producing these new, often electric and high-tech vehicles have for sure played a significant role in the growth of the amounts being financed, but there is no doubt that the average Canadian is being affected by the widespread rise of overall cost of living.

In fact, real world information confirmed this trend when BMO announced recently that they are officially shutting down their indirect retail auto finance business division.

As for the rationale behind this decision, BMO has indicated that the rise in delinquency rates were now higher than in the pre-pandemic economic environment. Many consumers, much like dealerships, are feeling the pressure from multiple sides and have had to make decisions negatively affecting other areas of their debt portfolios.

This evolving market dynamic is of interest for dealers because it could very well be one of the first “dominos“ to fall — for the automotive industry — and confirm that we are indeed entering a period of economic hardship.

For many months now, the worrying things and predictions that were said about the Canadian economy didn’t seem to fully translate to the dealers with overall retail sales number being positive compared to 2022 (10.5 per cent rise in parts sales and 9.1 per cent increase in new vehicle sales¹).

This economic momentum very well could be maintained in the second half of 2023, a tested, proven and steady level of consumer resilience being the main reason why it could happen. Only the next few months, however, will allow us to determine if this story of resilience and positive sales remains a thing during what appears to be a looming economic recession.

Over the next six months, keep a close eye on the movements of the financing and leasing activities of your auto dealership. It could quickly become one of the most reliable indicators of what is to come and how to prepare for it.

REFERENCE: Desrosiers Automotive Consultants, Retail Sales Continue to Climb in the First Half, September 1st 2023.

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Economic uncertainty and supply disruptions are impacting consumer behaviours.

Recently, there has been a lot of interest by journalists and news outlets on the topic of vehicle pricing in Canada and the underlying effects of the increased interest rates.

Acting as CADA’s lead economist, I have been heavily involved in these discussions and I have witnessed the predictable, almost inevitable, surprise when I tell them that the transition towards an EV-dominated market is one variable that helps explain the increase, the stickiness, and even the potential decrease of new vehicle prices. 

Some of the pundits I interacted with saw my sudden pivot towards the EV discussion as a not-so-subtle way of avoiding other hot topics regarding our industry, but the reality is that the recent pricing situation is a result of the unique combination between a complex economic situation and deep sectorial transformations.

On one side of the equation, the Canadian economy has positioned both business owners and consumers in a strange state of limbo where our traditional intuitions about markets and prices remained thoroughly challenged.

While core inflation has been trending down since the beginning of Q3, the Bank of Canada has maintained its anti-inflation strategy by raising the overnight target rate to 5 per cent in early July. Additionally, the rise of overall company costs in the U.S and the 2 per cent shrinkage of Canadian exports towards the American market might be enough for central bankers to hold-off on eventual, some say expected, interest rate cuts.

Evidently, the transition towards a full EV market is the most significant one and has contributed to the overall increase in vehicle prices.

For consumers looking to purchase a vehicle, the future prospects of our economy remain extremely murky and could very well lead to more prudent and risk-averse purchasing patterns.

After multiple months of erratic consumer behaviours that almost appeared disconnected from the economic insights provided by our best national experts, it seems as if the threat of a recession has made its way into the decision-making process of Canadians looking to purchase big ticket items.

One of the recent developments highlighting the market unpredictability that dealerships have to manage is the registered job loss in July that has been accompanied, counter-intuitively, by a rise in wages. Should business owners interpret this as a sign of economic slowdown, as a proof of more income for buyers or simply as the result of a discrepancy between employment demand and the massive migratory influxes?

All in all, mixed signals have been a recurring theme and have made it difficult for central bankers, business owners and consumers to strategically plan for the next 12 to 18 months.

On the flip side, the automobile industry is going through seismic transformations requiring major investments from governments, manufacturers and dealers. Evidently, the transition towards a full EV market is the most significant one and has contributed to the overall increase in vehicle prices.

Electric vehicles are more expensive to build because they incorporate new technologies, new electrical components and new materials — resources often found across the globe and not strictly within the confines of the North American market.

On top of that, many manufacturers have changed their production chains from top-to-bottom to enter and compete within the ever-growing segment of electric vehicles. These choices come with major R&D, infrastructure and capital costs that manufacturers eventually hope to cover and justify to their shareholders in the upcoming years.

Supply and demand also drove up the prices for the EV segment. As mentioned, the vehicles are more complicated to make and are reliant on a global supply chain and on new technological expertise.

Most recently, OEMs weren’t able to produce these vehicles at a pace that matched the rapidly growing consumer interest in this new product. At the same time, governments increased their efforts in promoting EVs by rolling out more programs with financial or fiscal incentives for the consumer.

This threshold between supply and demand, while diminished since the end of the pandemic, accentuated the pricing difference between traditional vehicles and this new segment: the $50,000 to $90,000 average price tag for EVs in Canada is thus the end-result of this unique and multi-factored situation.

Now, one might think the significantly higher price point would drive consumers to the used car side or even towards leasing electric vehicles.

Well, with the quality of production of our industry, there are simply fewer cars on the used market: vehicles are now staying on the road for around 13 years (all-time record for Canada). This generates upward pressure for the used prices and seems to naturally redirect consumers towards new vehicles.

Leasing has also not been as strong in the past, mainly because of how the current interest rates have affected the ability of consumers to get adequate financing. This could very well change in the next months because the Canadian household saving rate went from 5.80 per cent in 2022 to 2.90 per cent in 2023 (per Stats Can.). But for now the leasing rate in auto dealerships is hovering around 23 per cent compared to 31 per cent before the pandemic (see CADA Data report 2022). Over time, fewer leasing transactions indirectly reduce used inventories, pushing prices up and consumers towards new vehicles.

Over time, fewer leasing transactions indirectly reduce used inventories, pushing prices up and consumers towards new vehicles.

Finally, the recent data on EV sales numbers and EV prices is pointing towards the emergence of a new equilibrium, or a new environment, where a gradual slowing down of public interest towards EVs coincides with manufacturing levels picking up — resulting in more inventories across multiple brands and dealerships. Some price reductions have already been observed and we could see more shortly as governments haven’t shown the capacity to adapt their incentives programs to the current price level of most EVs on the market.

It is difficult to predict if OEMs are willing to adjust their pricing to the market considering the significant financial exposure that I mentioned. One thing is clear: the direction of the EV market will dictate a lot of what is perceived and understood about the overall automotive industry.

With more countries adopting EV mandates as a way to lead and structure this transition, it will be interesting to see how differently, or similarly, different companies deal with this transformation. As usual, dealers will have to adapt and find their own ways to succeed in a context characterized by complicated economic trends and shaped by the ever changing state of the new electrical vehicle market.

REFERENCE :

https://www.cbc.ca/news/business/canada-new-gloom-column-don-pittis-1.6932449

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Interest rate hikes caught some by surprise. Here’s what’s behind it.

In June, the Bank of Canada announced that it had increased the target for the overnight interest rate to 4.75 per cent.

This may come as a surprise for many Canadians, as the narrative in the media has been, for many months now, that the late 2022 interest rates increase would lead to a slower economy, and thus lower rates, in the first part of 2023.

As I have done in the past, I am using this opportunity to give dealers broader economic context, go over what led to this interest rate hike and highlight how it might affect dealers for Q3 and Q4.

First and foremost, the Canadian GDP has seen growth of almost 3.1 per cent over the last 6 months. Even when adjusted to population growth, this economic vitality has been driven by a robust increase in consumption across a large array of goods and services — which in turn led to sustained labour demand.

Usually perceived as a reliable precursor of what’s coming next in the economy, housing market activity has also been on an upward trend despite what most economists anticipated.

The recent economic uptick has led to an increase in inflation, the first one in more than 8 months, and thus motivated the Bank of Canada to continue its quantitative tightening.

Even when adjusted to population growth, this economic vitality has been driven by a robust increase in consumption across a large array of goods and services — which in turn led to sustained labour demand.

The steady economic activity has also been observable for the automotive industry. In fact, auto sales in Canada have increased by more than 10 per cent in May compared to April and sales have gone up by 13.5 per cent compared to May of last year¹.

While these results are positive and act as a reflection of the overall strength of the economy, sales numbers are still not anywhere close to pre-pandemic levels.

There is a silver lining: inventory levels have increased steadily but are also still lagging behind 2021 levels. Per a survey led by Desrosiers Automotive Consultants, dealers are saying that on average inventories are at 42 per cent of normal. With sustained consumption levels, it is fair to assume that low inventories have contributed to dealers’ difficulty in capturing some of the demand — demand that, for many reasons, wasn’t expected this late in 2023.

Now, what should auto dealers expect for the second part of the year? It would be an understatement to say that the current situation is confusing for Canadian business owners. With the Bank of Canada doubling down on its approach while the economy is still showing clear signs of dynamism, what will eventually prevail?

Well, Canada has yet to enter the period where interest rates start to have measurable effects on the economy. Historically, it takes 18 to 24 months for an economy to fully be affected by the interest rate hikes made previously by central banking institutions. Currently, our economy is 15 months removed from the initial target rate hike. This points towards Q4 as the period where significant changes in consumption patterns could occur and thus inform business owners of what’s to come.

In other words, it is more than likely that the expected economic downturn has been delayed, not avoided. Even the BoC’s own data seem to show that the overall demand excess might not be as important as portrayed. If we couple that with the increasingly higher debt levels among households, it is once again fair to assume that we are currently only observing the tip of the iceberg.

Also, one key aspect of the central bank messaging has changed since the last public announcement: there was a mention of corporate behaviour as a possible force behind the increase in prices. While this can look benign for afar, it could have a rippling effect on how consumers interact with vehicle dealers.

Auto dealers have been fighting tooth and nail to build environments of trust, transparency and clear communications with both potential and current clients. On the other hand, sticky inflation and the increase in prices and goods have many consumers looking for culprits behind these tougher economic times.

Now with the Bank of Canada even mentioning the possibility of corporate interests driving prices, this narrative will simply become more prevalent. It will become increasingly important for dealers to be aware of this dynamic, be understanding of consumers and circle back to the basic customer service fundamentals that have helped auto dealers become some of the most reliable and trustworthy businesses in Canada.

SOURCE: 1. May 2023 Canadian Sales, Desrosiers Automotive Consultants, 2023.

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Consumers seem to be adapting to unpredictability, which could be a good thing

Recently, there has been a lot of interest, shared by both business owners and ordinary citizens, in regards to where the Canadian economy is going.

The end of 2022 was marked by a maelstrom of different commentaries, analyses and reports directing regular folks towards multiple conflicting takes on what to expect for the upcoming year.

Obviously, after a quarter, we don’t have the answers for all of these questions.

As CADA’s lead economist, however, I believe that a brief quarterly overview could help contextualize and inform auto dealers on what are the current market trends and on if any major macro political or economic changes occurred in the last four months.

First of all, sales levels have been trending at a higher rate than for Q1 of last year. If we look at March, there has been a 3.7 per cent increase in sales compared to the year before (Desrosiers Automotive Consultants).

While the numbers behind might not look overly significant, it is the underlying positive trend that should really excite dealers. For most of Q1, auto dealers across Canada have been able to string together multiple months of good results, which is positive considering how prevalent economic anxiety was at the end of last year. This is not to say that this anxiety is slowly disappearing, but a healthy market for sure helps mitigate this uneasy feeling.

Of course, one of the main drivers behind this is that automobile dealers have seen a steady increase in inventory. It is not at pre-pandemic levels just yet and probably will never be, but having a few models on the lots has for sure rallied the consumers towards the dealerships and has brought a sense of normalcy to the dealer-consumer relationship.

In fact, despite the economic uncertainty among consumers, the appetite for vehicle purchase is still strong. Now, is this simply the result of pent-up demand? Maybe. It could also be that consumers have been accustomed to the uncertainty that characterizes our worldwide, connected and integrated modern economy.

The pandemic, the ongoing war in Ukraine, the seemingly unresolvable supply chain issues and fluctuating energy costs have generated an environment where potential buyers aren’t always equipped to gauge and evaluate properly what’s coming next in our economy. This willingness to invest and spend in the unknown has been surprising for the auto industry, but we shouldn’t start talking about business dynamism or momentum for the moment with quarterly sales still lagging 2021 numbers by a whopping 16 per cent (Desrosiers Automotive Consultants).

If we steer away from the auto industry and look at the world’s economy, global economic growth has been better than what most experts would have anticipated.

This growth stems mainly from the positive quarterly results in Europe, China and from the U.S, which is even more surprising considering they experienced a bank run in early March.

This episode of regional financial instability very well could have triggered some nationwide economic anxieties, but it wasn’t the case. It did, however, incentivize U.S officials in tightening credit access which will undoubtedly have a negative effect on American growth and Canadian exports down south. It will be interesting to see how it impacts the auto manufacturing and trade industry in North America.

In Canada, strong immigration numbers and labour supply have helped sustain high consumption and high employment levels, which in turn have been translated in the sales data expressed earlier.

The flipside is that inflation hasn’t really decreased in Q1 compared to some major European economies, forcing the Bank of Canada to maintain its overnight rate at 4 and half percent.

As multiple countries are benefiting from lower energy prices and increased inventories, affordability remains a big issue in Canada and could eventually have an effect on auto dealers in the upcoming months… this could also be where the lack of momentum in sales is originating from.

In a survey from the Bank of Canada, 37 per cent of Canadians have mentioned that they anticipate visiting restaurants less often and expect to travel less.

Once again, it is complicated to differentiate between big-ticket items like vehicles and more day-to-day spending, but it seems as if the economic anxiety is becoming more and more entrenched in consumption behaviour, which would then affect all segments of the economy.

The next quarter will be fascinating because it will allow us to evaluate, at least a bit more, the nature of this positive trend in auto sales. For example, in the survey, 15 per cent of Canadians expected our economy to get better and 28 per cent expected no change. The upcoming months will allow us to gather the data required to contextualize more adequately the 2023 economic trends.

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Skilled worker shortages are a big concern throughout auto industry

There is no doubt that the lack of skilled workers is one of the most pressing issues that business owners are facing in today’s economy.

More than ever in our history, our society is heavily reliant on service offerings by private actors. From auto technicians to plumbers or to doctors, the better than average quality of life for Canadians is directly related to the access to said services. In 2018, the value added from services represented almost 68 per cent of Canada’s total GDP.

Of course, workers are what drives every type of economic sector. The problematic aspect with the tertiary sector (services) is that as the technology underlying new products is evolving, the level of skills required to interact with these products (repair, operate, teach usage, etc.) is quickly increasing.

This phenomenon is particularly true when it comes to the auto sector—the new generation of vehicles are characterized by this electrification and digitalization process that will require an entire overhaul in the expertise of repair and service technicians.

The labour shortage issue for auto dealers adds another layer of complexity that business owners in other sectors do not have to deal with—public perspective. As many know, there is still a lingering stigma regarding repair and service technicians’ jobs in the automotive industry. This stigma is rooted in cultural representations of the auto sector and in the steadily increasing societal pressure for students to eventually attend university… which is unfair considering that in the 21st century many auto-sector gigs require, at minimum, some university-level training.

This negative public perspective has undermined the efforts made by industry leaders and trade schools to promote the quantity, and most importantly, the quality of jobs that are available in the auto industry.

The narrative frequently presented is that while businesses have a hard-time finding the right people for their open positions, our economy is still thriving and generating more jobs—thus exacerbating the difficulties associated with the lack of workforce.

Through a CADA led survey, dealers have been adamant that there is a severe lack of “new blood” in the talent pipeline—at a time where knowledge of new automotive technologies is at a premium.

Out of the 300 respondents, 83.3 per cent said they are facing an acute shortage in repair technicians and service department workers. More than 35 per cent mentioned that the young workers interested in this industry do not have the skills required to engage with the new electric or highly digitalized vehicles while 97 per cent of the dealers surveyed have said that the situation will get worse.

I explained in the article for the February edition that it would be beneficial for everybody to have more nuanced, facts-based discussions about the overall state of the economy.

I believe that a similar change is also necessary when it comes to the narrative regarding labour shortage and the growth of the Canadian economy. This critique stems mainly from the double-discourse that we can observe throughout the media landscape and from our provincial and federal governments.

While several investments and commitments, notably by Immigration Canada, have been made to alleviate the pressure generated by the lack of workers, the low-unemployment numbers are also frequently used to highlight how dynamic and growthinclined our economy is.

The narrative frequently presented is that while businesses have a hard-time finding the right people for their open positions, our economy is still thriving and generating more jobs—thus exacerbating the difficulties associated with the lack of workforce.

Moreover, this problematic state of extreme labour market tightness (5 per cent unemployment) always seems to be paralleled with the eventuality of an economic contraction, as if the downturn would push more people to the job-market. Historically, this assumption has often been validated: unemployment rate in 2008 went from 6 per cent to 8.8 per cent and went from 8 per cent to 12 per cent during the 1991 economic crisis (source: Globe and Mail).

The situation might be extremely different in 2023 as many economists believe that unemployment levels could remain at all-time lows even if Canada’s experiencing a recession. One of the most potent explanations for that is that the 55+ age bracket is the fastest growing in the country while being one of the least involved in the production (workers) side of our economy.

For auto dealers, the labour shortage crisis simply will not end with an economic adjustment, no matter the scale. The majority of technicians are closer to retirement than their apprenticeship and the overall intake in new students simply isn’t sufficient for what this industry will need during the ongoing transition towards a full EV market.

This is not news to anybody, especially not for automotive dealers. The reality is that the public narrative on unemployment has to change by, for example, incorporating more openly the dynamic of population aging in Canada.

Linda Nazareth presented a similar argument beautifully in the Globe and Mail earlier this month: “What is certain though is that when it comes to assessing the damage of this downturn in the business cycle (whether or not we call it a recession) we need to read the tea leaves differently than we have in the past.”

Nobody is more in-tuned with the workforce challenges than the people involved in the auto-industry. Now is the time for the people in key positions to listen to them while steering away from the “laissez-faire” attitude based on the historical effects of past recessions and look at Canada’s current situation as something completely unique requiring perhaps some unexpected partnerships.

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When politics become part of industry affairs

A few weeks ago, CADA had the opportunity to testify to the Standing Committee of Industry and Technology (INDU) regarding Bill C-244 titled An Act to Amend the Copyright Act. 

Overall, this amendment would promote a cross-industry right-to-repair by ‘allowing the circumvention of a technological protection measure in a computer program if the circumvention is solely for the purpose of the diagnosis, maintenance or repair of a product in which the program is embedded’. In simpler words, it would give access to aftermarket actors to the information and tools required for full reparation or diagnosis.

Now, the objective today is not to bore the readers with all the minutia surrounding the legislative process in Ottawa. With that being said, this bill exemplifies perfectly how political interests and philosophy can, sometimes, be counterproductive to the efforts being made by the private sector and by the people most familiar with a specific industry. 

Here is why.

The right-to-repair discussion has been ongoing for a long time between the public and the majority of manufacturing-dependent sectors, such as the automotive and household appliances industry. The right and ability to repair is key in fostering innovation, knowledge and environmental awareness within the people that are involved with the product, from the production stage, all the way to the aftermarket, and to the consumer.

The auto sector has been at the forefront of this process for more than a decade, and it initially started with the need to have a platform where repair and diagnosis information could be shared between OEMs and aftermarket businesses. What came out of that is the Canadian Automotive Service Information Standards, otherwise known as CASIS, which helped put in place the framework required for repair and maintenance info to be shared between manufacturers, dealers and the aftermarket. 

Compared to others, the automobile industry has been extremely forward-thinking, flexible and collaborative in the right-to-repair file. Interestingly, the genesis of CASIS took place in Parliament with the works of elected members seeking more transparency and information-sharing from the OEMs. In that instance, political interests led to an agreement where the subjects, mainly manufacturers and aftermarket firms, are fully involved in the solution that was chosen to help expand access to repair info. 

Solutions are never perfect, and that is especially true for the auto industry where thousands of people are involved and where technology is evolving by the day. Nonetheless, the facts point towards the CASIS agreement being a major driver of progress on the right-to-repair file, not the other way around. 

The average age of vehicles on Canadian roads is at an all-time-record of 12.5 years old, while the scrappage rate is at a historical low of four per cent. Vehicles are lasting longer than ever and are indeed being repaired—this is partly thanks to the possibility, for consumers, to find the repair and maintenance services they need, whether it’s through a licensed dealer or an aftermarket player. 

Per Statistics Canada, sales numbers also seem to partially invalidate the claim made by some aftermarket representatives that the transition to more connected and digitalized vehicles threatens their business models. 

In fact, this transformation has been occurring simultaneously with the development of the CASIS framework and aftermarket sales have grown over 110 per cent over that period of time. The industry, as a whole, has grown over the last decade and there is no doubt that CASIS has played a huge role in nurturing the symbiotic environment that has been created between dealers, manufacturers and the aftermarkets in relation to information access.

Bill C-244, by the amendment it proposes, could very well undermine the entirety of the work and the relationships that have been built, through CASIS, over the years. 

Deservingly so, the aftermarket is intrigued by the idea of having a complete access to vehicle information, but it is important to underline that it is also not the responsibility of these businesses to reflect on the security, cybersecurity, theft and environmental questions underlying this overarching right-to-repair legislation. 

“Overarching” is the right word to describe Bill-C244—some would even employ “overreaching”. The crux of the right-to-repair societal debate has always been about programmed obsolescence and the inability for consumers to repair the items they use on an everyday basis such as a phone, microwave, dishwasher, toaster, etc. 

The current Minister of Innovation, Science and Industry has even mentioned, in a letter to Minister Guilbeault, that Parliament should investigate the right-to-repair issue for appliances and electronic devices. 

In the eyes of some Members of Parliament, the increased interest of Canadians to this issue was the ideal window of opportunity where political gains could possibly be had. The final outcome of this political spark is an impressive barrage of right-to-repair legislations that will be, or currently are, debated and studied in the House.

However, the recent public uproar on right-to-repair has never been about the automotive sector and that can be explained by the industry’s pro-activeness in making sure that repair services remain accessible, up-to-date and efficient. 

The CASIS agreement has allowed and welcomed every industry player to have a seat at the table and be part of this process while also offering the necessary platform to engage on items such as cybersecurity and theft protection. The challenge for CASIS in the years to come is to find ways to attract these new manufacturers, most importantly the ones involved in EV technology, to the discussion. 

Members of the automotive industry have proven again and again their ability to communicate and to find common ground on important issues. CASIS is the result of that ability and ultimately it should be promoted and encouraged, not undermined by policy makers. Most often than not, industry issues should be fixed by industry experts, and the right-to-repair file is a great example of how it can be done.

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Honesty and transparency about the economy will help with consumer anxieties

Automobile dealerships have been some of the most affected by the current economic situation. 

After months of longing for more inventory, dealers are now caught in a scenario where more vehicles on the lot result in excruciatingly high carrying costs, while employment and labour costs remain at a historic level in order to match the increased costs of living. 

On the other hand, buyers are feeling uneasy about the direction of the economy, but some of them are also unaware of the fact that auto supply has increased dramatically in the past weeks. 

In fact, many of the dealers that CADA has engaged with have mentioned that the erratic changes in consumer behaviour are some of the most worrisome aspects of the current state of the industry.  

Part of this quickly changing and unpredictable behaviour is due to how the economy has been portrayed recently. For months, the media landscape has been littered with articles and columns about the numerous, consecutive interest hikes that have occurred here in Canada. 

While this has contributed to much-needed elevated public awareness about the implications of these interest rates, it has also created a lot of anxiety for the majority of Canadians. In fact, economic anxiety seems to be widespread—more than 72 per cent of Canadians feel as if the interest rates are outpacing their financial capabilities.

However, one of the problems with this discussion is that it has remained strangely tied to a Canada-centric perspective of the economic situation and inflation crisis that underlies this monetary policy. 

It is necessary to expand the debate by complementing it with a clearer explanation of how this situation is not simply the outcome of Canadian decision-making and economic behaviour, but the result of an important sequence of events that are occurring across the world. 

The main element that deserves mentioning is that there are still a lot of unknowns regarding the effects of a worldwide propension towards increasing interest rates. It is difficult to evaluate exactly how a single country’s economy, like Canada’s, for example, might be affected when many of its economic partners are all using similar “tools” to limit spending and thus reduce inflation. 

Of course, all of this seems to be pointing towards a global economic contraction—a recession—but it does not inform both consumers and business owners on the more delicate nuances of this possibility.

For example, the auto industry is one characterized by economic integration where the final product is the result of multiple factories and firms, spread across the planet, interacting constantly. 

Some of the economies hosting these “production nodes” may diverge on many aspects: worker qualifications, property laws, access to credit, fiscal stability, government spending—this endless list underlines how supply chains, anchored in varied economic set-ups, can be slowed down when a gauntlet of major countries are fighting inflation the same way and at the same time. 

Disrupted supply chains can generate, as we found out throughout the pandemic, significant inventory shortages which then could also lead to price and overall market volatility.

The timeframe of it all is also to be determined: interest hikes tend to have their full effects around six to twelve months after the fact. Considering that the raises have been staggered over a few months, it is difficult to anticipate when the proper moment will be to assess accurately the actual and future state of, not only the automobile market, but the economy as a whole. 

While it is possible that some potential buyers are betting on an upcoming recession to come with a decline in interest rates, there seems to be a shared consensus between central banking institutions that the goal is, and should remain, to reduce inflation and to, most importantly, ensure that inflation expectations remain anchored. If that truly is the primary focus and that employment numbers stay as solid as they currently are, the argument can easily be made that higher interest rates could be maintained during the potential economic contraction (depending on its severity). 

Clear, comprehensive and nuanced dialogue from the media and within the dealerships could play a major role in ensuring that most consumers have the proper information required to make a decision of financial importance like the purchase of a vehicle. For many of the reasons presented, it might not be sufficient to simply look at interest rates hikes, or decline, as a trigger to enter the market. Better communication has to come from the top also—the IMF has recently published articles pushing for more transparency and clarity from central banks regarding policy decisions.

Whether you are a potential buyer or business owner, everybody should be encouraged to engage in conversations about the economy. It is a crucial exercise because it generates a better understanding from the public, through which decision-making becomes more astute, anchored in facts and less motivated by an overly pessimistic, or optimistic, feeling toward the economy. 

This, in turn, facilitates the dealer-consumer relationship when both parties have a more in-tune dialogue regarding the economy and all the personal anxieties that could be tied to it.

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