June 24, 2021

Gp Delivers1

The excellent automotive artisans1

Fewer vehicles on Canadian lots, but there is profit to be made

“If the entire industry was in a sales-distress state, we wouldn’t see vehicle price rising, days to turn dramatically depressed and dealer margin and front-end gross increasing,” Karwel said. “From what we see, it looks like a supply situation.”

Canadian dealers sold 90,890 new vehicles in January, down 17.4 per cent from the same month a year ago, according to estimates by DesRosiers Automotive Consultants. But January 2020 was the fourth-best January on record, and January of this year was short one sales day, DesRosiers noted.

Most of the car companies that continue to report monthly reported losses, including Honda and Hyundai, with decreases of 31.3 per cent and 20.5 per cent, respectively.

“With the whole country in various degrees of lockdown and the auto industry still working through supply-chain disruptions, the market decline was no surprise,” said Andrew King, managing partner at DesRosiers Automotive.

INVENTORY SHORTAGE ‘ATROCIOUS’

But the double-digit sales plunge and anemic supplies have dealers such as Alizadeh worried that the market’s struggles will run into the next several months if COVID-19 doesn’t subside and inventory remains low.

“We had a good run through 2020, and we felt we came to a point where we managed expenses better and improved our business model,” said the CEO of the Downtown Auto Group. “We had somewhat of a stable business model, and January threw it all out the window. [It] was absolutely a brutal month. January was, quite frankly, a bloodbath.”

Alizadeh declined to disclose his monthly sales figures for his 10 dealerships.

Global automakers, particularly those based in North America, still haven’t recovered from the pandemic-induced shutdowns of 2020. And now, a shortage of microchips has curbed auto production around the world.

“Certainly, the lockdown in Ontario put a damper on consumers heading out,” Karwel said, “but the lockdown is twinned with the supply issue.”

Ontario Premier Doug Ford strengthened the lockdown measures Jan. 12 by issuing stay-at-home orders, and began reopening the province slowly on Feb. 10.

Alizadeh called the inventory shortage “atrocious” and “horrible.” He said that he has fewer than 30 days’ inventory at his Ford and Lincoln stores and that “a Jeep Wrangler is nonexistent.”

When it comes to ordering a vehicle, the wait for some models can span 90 to 120 days, he said.

“There might be a sense [among buyers] that if inventory is that scarce: ‘Do I want to jump in and buy a car? Am I getting less-than-aggressive pricing?’ ” Alizadeh said. “And that might be true.”

DISINCENTIVE FOR INCENTIVES

The numbers appear to support that view.

Incentives fell to a record low $4,500 per vehicle to end 2020 — the lowest mark since 2012 — and Karwel sees no bottom in sight.

“You’re not going to see incentives rise. Based on ongoing supply disruptions, you’re not going to see the average rise much. In fact, it might fall to the $4,000 mark.”

Some high-margin segments continue to sell, Karwel said.

For example, 72 per cent of all the full-size utility vehicles sold in January did so in fewer than 30 days. A year ago, it was 50 per cent. Of all full-size trucks sold last month, 56 per cent sold in fewer than 30 days.

“There are certain buyers out there in certain segments, and [those vehicles are] selling fast,” Karwel said.

Scotiabank economist Rebekah Young said consumers in January likely chose to defer car purchases, a trend that could fuel “some pent-up demand in the months ahead.”

In the wake of 1.55 million sales in 2020 and despite continued volatility over the next two quarters, Young is forecasting “a healthy rebound to 1.8 million units in 2021, with improvements weighted towards the second half of the year once [COVID-19] immunizations are broad-based and fleet comes back online as travel resumes.”