Motorists are advised to wear their seat belts for a very different car buying season in the spring.
In addition to complicating the shopping experience, the COVID-19 pandemic could have an impact on selection, price and funding, experts say.
“We are finding that customers will likely be able to get better deals, but by entering into cash or financing transactions rather than leasing at this point,” said Robert Karwel, senior director of automotive practices in Canada for JD Power.
The reason is that calculating the residuals, or the value of a vehicle at the end of its rental, will be difficult because no one has a good idea of what the used car market will look like.
“Right now, you can probably safely assume that the residue will go down just because of people’s fears of committing to buy a new vehicle now,” he said in an interview.
This means that car owners will receive slightly less for their trade-ins and therefore have less down payment for another vehicle.
With approximately 41,000 cars per month slated to be released in April and May, companies are expanding their customer commitments as much as possible. This means that many used cars will return in the third and fourth quarter of the year, he said.
Spring is usually the key time to buy or lease cars, but this year will be on the decline.
Retail sales fell nearly 50% in March, and April is expected to be even worse due to foreclosure initiatives across the country, although light trucks were less affected.
Auto sales in Canada are expected to average 1.5 million this year, down almost 23% from the previous year before jumping 37% in 2021, said Thomas Feltmare, senior economist at TD Economics.
“Given both the magnitude of the shock and the current level of uncertainty, consumers are likely to give up short-term purchases and wait until better economic conditions prevail,” he wrote in a report.
Even if economic activity begins to resume next month, it will be gradual and may take a while to return to the normal level of 1.9 to 2 million annual sales in Canada.
Sales may be slower to recover in Quebec, which has the highest number of COVID-19 cases in the country. Low oil prices could also hamper activity in Alberta, Saskatchewan and Newfoundland and Labrador, as they did in the last oil shock several years ago.
Falling equity markets could also help slow interest in luxury vehicles, which were hit the hardest in March.
Karwel said the best deals will be cash purchases for the 2019 models or the less popular 2020 models.
Deals on the most popular cars will be hard to find because the automakers have halted production.
“The customer will have to be satisfied with what they can find on the dealer’s grounds, because we don’t have a lot of inventory in stock,” he said.
Chris Murray of Alta Corp Capital said buyers should look for good opportunities, especially for 2019 vehicles, less popular brands and smaller vehicles.
“I don’t know if I would go out and say that everybody is going to sell everything,” said analyst at Auto Canada Inc.
“I think what we are going to see is that there will be opportunities in certain types of vehicles. And given what we’ve seen so far, the dealers who survived this downturn, they’re going to be very keen to try to make certain deals. ”
They will offer incentives while automakers will also increase their own discounts.
To date, Ford Motor Company of Canada is providing up to six months of payment relief on new purchases of 2019 and 2020 Ford and Lincoln models funded by Ford Credit. Existing customers can get up to 90 days of financing or rental payment extensions.
The FCA says it is waiving payments for 120 days on all 2019 and 2020 models for all of its brands.
The luxury sector may face increased pressure as Karwel said that the abandonment of leasing could produce better buying incentives than those available last year.
“So I definitely think there will be better opportunities for customers who want to finance a luxury car at this point. “
Fears of a recession could pose a greater threat to the industry than the virus. Demand would decrease as potential customers are less likely to commit to buying if they don’t have a job.
Manufacturers will then be less inclined to put large incentives on cars as their ability to attract customers will be limited, he said.
“When the market contracts, you are not looking at the automakers to try to gain share by increasing the incentives, they will remove them to some extent to preserve profitability.” “