Canadian auto sales face “tough year” in 2020, Scotiabank says

Canadian auto sales are expected to face a tough year in 2020, a new report from Scotiabank says.

With a near shutdown in business activity and strict social distancing measures in place across most of the country, Scotiabank Economics anticipates the Canadian economy will contract by 4.1% this year, followed by a rebound of 5.1% in 2021.

“This is based on the assumption that activity starts to normalize in the third quarter of the year,” Scotiabank said. “Should the outbreak persist as long as six months, the contraction in GDP could be even larger than 6%. Needless to say, auto sales are expected to contract sharply in 2020 by around 25% year-over-year in a three-month scenario and over 40% if the situation endures beyond that.”

Auto sales and the sector more generally face a variety of headwinds, Scotiabank noted. “Consumers are largely housebound and many dealerships are closing temporarily as policy measures and precautionary behaviours take hold in the near term,” it said. “Many households face income instability as layoffs ensue, with the federal government anticipating an additional 4 million Canadians will apply for new employment insurance benefits on top of the reported 1 million new applicants last week alone. This will further erode auto demand.”

In addition to a lower sales outlook, auto dealers and automakers face funding pressures as financial conditions tighten, Scotiabank said. “Policy rate cuts by the Bank of Canada have only partially fed through to financial markets as they otherwise would in normal times,” the report said.