Market and Economy Watch – May 2020
June 8th, 2020
By Oumar Dicko, Chief Economist, CADA
As provinces embark on a gradual reopening of their economies, the vehicle market in Canada is showing signs of slow recovery after an abysmal month in April. An estimate by DesRosiers Automotive Consultants (DAC) indicates that sales dropped 44% in May, compared to the same period last year. Total sales for the month came in at 113,224 units, a stark improvement from last month.
There is a semblance of return to “normalcy” in the market; businesses and dealerships are reopening, production is ramping back up — and more importantly, consumers are returning to showrooms. Consumer spending is steadily re-igniting across the country, as economic activity reboots and more Canadians return to work.
Consumer spending steadily recovering
YoY change in debit & credit card spending (%)
Source: RBC Economics
The performance of the market in May provides an indication that sales may have bottomed out in April, and that there are brighter days ahead for the automotive sector.
That said, we are not out of the woods yet. There is a consensus among experts and economists that recovery will be slow and uneven across Canada, given the severity of the current crisis. GDP is projected to drop by 7 to 8 per cent for 2020. Uncertainty around the risk of a second wave would put some additional pressures on production and consumption. While the federal government's financial response to COVID-19 has helped mitigate job losses in the sector and provided some much-needed liquidity to bridge the gap, the auto sector needs a robust plan for revival.
In order to save jobs and inject much-needed stimulus into an industry reeling from a fundamental lack of consumer confidence, the federal government needs to complement their recovery plan with measures aimed at incentivizing vehicle purchases in Canada. A comprehensive and targeted auto sector stimulus can include measures such as a national scrappage program, which would catalyze vehicle sales post-crisis, support dealers and auto manufacturers, and stimulate the economy.
New Vehicle Market
*Desrosiers estimate
Source: DesRosiers Automotive Consultants Inc.
Source: DesRosiers Automotive Consultants Inc.
Source: DesRosiers Automotive Consultants Inc.