Looking for car? Vehicle market likely to look very different due to pandemic

TORONTO — Motorists are advised to fasten their seatbelts for a very different spring car-buying season.

In addition to complicating the shopping experience, the COVID-19 pandemic could have an impact on selection, price and financing, say experts.

“We do see that customers will probably be able to get better deals, but by making cash deals or finance deals rather than lease deals at this point,” said Robert Karwel, senior manager of automotive practice in Canada for J.D. Power.

The reason is that calculating residuals, or how much a vehicle is worth at the end of its lease, will be difficult because no one’s got a good grip on what the used car market is going to look like.

“Right now you could probably safely assume that residuals are going to go down just because of people’s fears of committing to buying a new vehicle right now,” he said in an interview.

That means car owners will receive a little less for their trade-ins and therefore have less of a downpayment for another vehicle.

With about 41,000 cars each month projected to come off lease in April and May, companies are extending customer commitments as much as they can. That means a lot of used cars will be coming back in the third and fourth quarter of the year, he said.

Spring is typically the key period for vehicle purchases or leases, but this year will be down.

Retail sales plunged almost 50 per cent in March, and April is expected to be even worse because of lockdown initiatives across the country, although light trucks have been less affected.

Canadian auto sales are expected to average 1.5 million this year, down nearly 23 per cent from the prior year before surging 37 per cent in 2021, says Thomas Feltmare, senior economist for TD Economics.

“Given both the magnitude of the shock and the current level of uncertainty, consumers are likely to forego near-term purchases and wait until better economic conditions prevail,” he wrote in a report.

While economic activity will begin to return next month, it will be gradual and could take awhile to return to the normal 1.9 million to two million level of annual sales in Canada.

Sales could be slowest to recover in Quebec, which has had the country’s most cases of COVID-19. Low oil prices could also hamper activity in Alberta, Saskatchewan and Newfoundland and Labrador as they did during the last oil shock several years ago.

The decrease in equity markets may also help to slow interest in luxury vehicles, whose sales were hurt the most in March.

Karwel said the best deals to be had will be cash purchases for 2019 models or less popular 2020 models.

Deals on the most popular cars will be hard to come by because car manufacturers shuttered production.

“The customer is going to have to be satiated with kind of taking what they can find on a dealer’s lot as we don’t have a lot of inventory in the pipeline,” he said.

Chris Murray of Alta Corp Capital said buyers should shop around for good opportunities, particularly for 2019 vehicles, less popular brands and smaller vehicles.

“I don’t know if I would want to come out and broad brush say everybody’s going to fire sale everything,” said the analyst covering Auto Canada Inc.

“I think what we’re going to see is there’ll be opportunities in certain types of vehicles. And given what we’ve seen so far, the dealerships that survive this downturn, they’re going to be pretty eager to try to get some transactions done.”

They’ll offer incentives while car manufacturers will also step up with their own discounts.

So far, Ford of Canada is providing up to six months of payment relief on new purchases of 2019 and 2020 Ford and Lincoln models financed through Ford Credit. Existing customers can get up to 90 days of financing or lease payment extensions.

FCA says it is waiving payments for 120 days on all 2019 and 2020 models for all of its brands.

The luxury business could face increased pressure, as Karwel said the shift away from leasing could produce better purchase incentives than were available last year.

“So I think for sure, there will be better opportunities for customers that wish to finance a luxury car at this point.”

Fears of a recession could be a bigger threat to the industry than the virus. Demand would wane with potential customers less likely to commit to a purchase if they don’t have jobs.

Manufacturers will then be less inclined to put big incentives on cars because their ability to attract customers will be limited, he said.

“When the market is contracting, you’re not looking at car manufacturers to try to gain share by increasing incentives, they will pull incentives back to a certain extent to preserve profitability.”

This report by The Canadian Press was first published April 30, 2020.

Ross Marowits, The Canadian Press