Plunge in Canadian auto sales decelerated in May, Scotiabank says

The plunge in Canadian auto sales caused by the COVID-19 pandemic slowed in May, a new report from Scotiabank says, with a decline of “only” 45% year-over-year (y/y) (nsa) at a seasonally adjusted rate of 1.1 million vehicles.

“April should mark the abyss of the pandemic-induced auto sales contraction that saw activity drop by 75% y/y,” Scotiabank said in its latest Auto News Flash. “As dealerships across the country began tentatively opening in mid-May, vehicle sales accelerated with month-over-month purchases up by 127% (sa) by month-end. No doubt, some pent-up demand along with bargain hunters drove the rally. Going forward, the strength and sustainability of the rebound will depend, in part, on job recoveries”.

The unemployment rate – measured in mid-May – is expected to swell again to around 16%, the report said, as another million Canadians tapped the new employment benefit (mid-April to mid-May), bringing the total to 8.3 million applicants. Business confidence also moderated somewhat mid-month, according to the Canadian Federation of Independent Business: following a 40% month-over-month (m/m) rebound in April confidence levels among its retail members, the rally in sentiment decelerated in May with a more modest 6% m/m uptick.

“With the pandemic still brewing in the two largest Canadian cities, consumer confidence will be key – with respect to both their physical and financial well-being,” Scotiabank said. “At this point, we have modestly rounded up our annual forecast to 1.4 million units for 2020 in light of the early pick-up in sales but risks still persist.”

In the U.S., meanwhile, auto sales also saw a smaller decline of 30% y/y (nsa) in May with a seasonally adjusted sales rate of 12.1 million vehicles. According to Scotiabank, sales picked up by 41 % m/m (sa) following April’s steep drop (47% y/y). “Not surprisingly, the relatively shallower dip in auto sales at the peak of the pandemic (or at least the peak of shutdowns) is translating into a weaker rebound,” Scotiabank said.

“Initial re-opening enthusiasm boosted consumer expectations (as measured by the Conference Board) by almost 9% m/m in April, but this since moderated to 3% m/m in May,” Scotiabank said. “However, car purchase intentions leapt by almost 40% m/m in May to a level only about 10% off pre-crisis intentions. This may reflect more of a shorter-term pent-up demand rather than a longer-term trend as the employment outlook paints a more moderate picture.”

Job losses in the U.S. continued to climb through May, the report said, with an expectation that the unemployment rate could surge further to 19% in May from an already-elevated level of 14.9% in April. “Given the shallower-than-expected trough in auto sales, we have revised up annual sales modestly to 13.5 million units,” Scotiabank said.