Automotive News Canada - March 2021-v2 - 25

* MARCH 2021

Bare lots: People have money and 'nowhere to spend it'
CONTINUED FROM PA GE 1

'INVENTORY IS EVEN TIGHTER'

who expects annual sales will remain
flat at 1.5 million. Industry forecasts
in December had pegged 2021 sales at
about 1.8 million units.
February sales of passenger cars
and light trucks totaled 112,654 units,
down 10 per cent from the 125,059 units
sold in February 2020, according to estimates from DesRosiers Automotive
Consultants (DAC).
Year to date,
SALES ANALYSIS sales
are down 13.4
per cent to 203,544
units, according to estimates by DAC.
While January and February are typically slow months, global auto plants,
particularly those in North America,
have yet to recover from sporadic pandemic-induced lockdowns that have
plagued the industry for a year.
As well, no end is in
sight to a global microchip shortage that has
some automakers building incomplete vehicles
and leaving them in lots
waiting for the critical
parts to arrive. To make
matters worse, a shortage
of seating foam - caused
Chipman:
Customers by a lack of propylene
are virtually oxide, needed for the
polyurethane - looms
lined up to
large.
order new
Steve Chipman,
vehicles.
CEO of Winnipeg-based
FILE PHOTO
Birchwood Automotive
Group, said he could have sold twice the
number of vehicles he did at some of his
stores in February, if he had the stock.
" People have money, people want
to spend money, but there's nowhere
to spend it. You see the opportunity,
you want to fill their demand, and you
want to keep customers happy, and you
can't. "

Low inventory could force customers to buy something other than what
they initially wanted, said Rebekah
Young, director of fiscal and provincial
economics at Scotiabank Economics.
But the more likely scenario is that it
would push pent-up demand later into
the year.
That doesn't help in the short term.
" Inventory is even tighter, certainly in domestic [brands], but it's tight all
over the place, " said Birchwood Auto's
Chipman, who first
noticed the problem in
October.
Inventory of the most
popular vehicles at his
dealerships is down
about 75 cent for the first
two months of the year
compared with the same
period in 2020. Total
Young:
inventory, he said, was
Buyers are
down about 25 per cent.
more likely
He has about 60 days
to wait for
the vehicles of inventory overall
but only about 20 days'
they want
as opposed worth of the most popular vehicles, such as
to buy
pickups.
something
February " was
they don't.
a decent month, "
FILE PHOTO
Chipman said. " We're
down a little bit over last year, but
we're up in used. Overall, we're on budget.
" We just got through the dog days of
the car business. January and February
are the two toughest months. But
March is here, and it's warming up. "
The CADA's Reuss couldn't say
when dealer lots would once again be
brimming with stock.
" Relief probably will be coming,
but will it be in time for summer? It's
very difficult to predict at this point in
time. " - ANC

Scotiabank Economics forecasts 1.8 million
vehicles sales this year but issued a warning that
inventory " represents a material risk to our 2021
sales outlook. " P H O T O : G R E G L AY S O N

Chipman's dealerships are taking
preorders, but those placed in early
March probably won't arrive until at
least April.
" And they're already sold, " he said.
" It's like the old days, when Honda and
Toyota took off and people were lined up
to buy cars. "
While Scotiabank Economics said it
is sticking with its forecast of 1.8 million
vehicles, it issued a warning in early
March, saying the inventory problem
" represents a material risk to our 2021
sales outlook " and could erode new-vehicle sales by five to 10 per cent over the
next few months.

'MARGINS HAVE GOTTEN BETTER'
Despite the uncertainty, Chipman
said, he and fellow dealers are thriving.
" Everybody's margins have gotten
better. Dealers have rightsized. [They]
have learned how to operate with less
cost. I don't think anyone is panicking.
" You won't see incentives. The
price of cars is holding better margins
because there are fewer cars. It's the
supply-and-demand ... of Economics
101. "

Scotiabank said new-vehicle price
inflation continued its upward trend in
February, rising 2.8 per cent compared
with overall inflation of one per cent in
January. And according to DesRosiers
Automotive Consultants, higher-margin light trucks comprised 83.5 per cent
of all February sales.
Andrew King, managing partner at
DesRosiers, said the seasonally adjusted annual rate (SAAR) of sales came
in at 1.84 million units. That means
that if February's sales pace continued
in each of the next 10 months, dealers
would sell that number of vehicles in
2021.
And with February being the last
month of normal comparables with
2020 - as March 2020 was the first
month sales were affected by COVID-19
- the SAAR is the important number
to watch in 2021, King said.
He called it " a variable to which we
will be paying even closer attention in
the coming months, as year-over-year
comparisons become less meaningful "
because sales will be compared with
months of lower sales due to the pandemic.

Dealers want used vehicles, but where do they look?
CONTINUED FROM PA GE 1

elevated. Canadian Black Book's Used Vehicle
Retention Index, which tracks the retained value of
two- to six-year-old vehicles, was at an all-time high in
February.
" Supply is so tight. Our average margins are double what they were two years ago, " said Michael
Carmichael, CEO of UpAuto, which
owns General Motors, Nissan and
Subaru dealerships in Stratford, about
150 kilometres west of Toronto.
" I've pulled my dealerships off
Autotrader, and we're still selling
cars. "

NEW OR USED, HARD TO FIND

Carmichael:
As new-vehicle supplies dwindle,
Margins on
used-vehicle inventory is also expect- used vehicles
ed to become harder to come by for
have doubled
dealers as the number of trade-ins
in two years.
falls. Some customers who would nor- F I L E P H O T O
mally buy a new car might instead
buy a used one if their new vehicle of choice isn't
available, or they might delay a purchase entirely.
Meanwhile, fewer fleet vehicles are moving
through auctions. Auto analyst Dennis DesRosiers
said 45 per cent of the fleet market typically comprises daily rental vehicles, a significant portion of
which travelers rent at airports. Reduced travel due to
COVID-19 restrictions, therefore, has depressed fleet
volume.
Gross profit on used vehicles is rising, DesRosiers
said, citing conversations with dealers.
" When you add in $2,000 to $3,000 to the transaction
price, it does result in higher grosses, " he said.
Those high margins are why the period from mid2020 to mid-2021 might go down as the best 12 months

in history for many dealers.
" One of the reasons car dealers are so profitable is
that the demand for [one- to five-year-old] used vehicles is up, supply is down and they're getting fantastic
margins on their used vehicles, " DesRosiers said.

U.S. DEALER PROFITS SOAR
Data on 2020 profitability of Canadian dealerships is not publicly available. In the United States,
however, average net pretax profit at dealerships
surged 48 per cent to US $2.1 million ($2.7 million) in 2020 from a year
earlier, according to the National
Automobile Dealers Association.
Average gross profit per used vehicle
rose 13 per cent during that time to
US $2,675 ($3,375).
Profits vary greatly by market
and brand, and large dealership
DesRosiers:
groups might generally be in a betWith the
ter position on inventory because of
collapse of
greater resources and access to other airline travel,
markets.
there are
Customers finding higher trade-in fewer rental
values for their used vehicles might
cars crossing
not be getting discounts on a new
the auction
car, DesRosiers said. Automakers
block.
and dealers have " backed off a litFILE PHOTO
tle bit on incentives, " he said, given
depressed new-vehicle inventory and the extra cash
customers are receiving for their old vehicles.
" There's never been a better time to trade in your
used vehicle, but you're going to pay more on the new
- if you can find it, " said Carmichael, the Stratford
dealer.
As margins on new-vehicle sales shrank in recent
years, franchised dealers began focusing more on
used and certified pre-owned vehicles. In the past,

Trade-in values might be
higher, " but you're going to
pay more on the new - if you can find it, "
said dealer Michael Carmichael from Stratford, Ont.
P H O T O : G R E G L AY S O N

DesRosiers said, an average Canadian new-vehicle
dealer might have sold 50 per cent as many used vehicles in a year as they did new cars. Today, that figure
is more likely to be closer to 60 or 70 per cent, with
an increasing number of retailers selling roughly the
same number of used vehicles as new, he said.
That could explain retailers' growing appetite for
used-vehicle sales. Carmichael, for example, said he
planned to open a used-car dealership by June, despite
inventory shortages.
" It's a tough time to do that, but I'm committed to
it, " he said. " But where are we going to get the cars? "
- ANC

Automotive News Canada - March 2021-v2

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