Montréal, Québec — A new report by BMO Capital Markets said that the auto industry has enjoyed a V-shaped recovery since the initial heavy damage inflicted by the start of the pandemic in March.
Due to the economic disruption inflicted by the COVID-19 pandemic, the service side of the economy was heavily impacted, however, the auto-sector particularly surprised many economists on the upside, stated in the BMO report.
While vehicle sales are finishing the year down by 15.5 percent from 2019, it is a much better outcome than the most severe scenarios the economists considered—even though—2020 was still a weaker year than pre-pandemic forecasts of a 3.7 percent decline.
“Early in the year, the outlook for the global auto industry looked dire. Dealerships were temporarily shuttered, and production was halted as the global pandemic caused the shortest and steepest post-war recession on record. Still, vehicle sales have managed to chart a V-shaped recovery,” wrote BMO.
While the auto sector did see demand plunged when the pandemic first hit, but quickly rebounded as lockdowns eased, interest rates slashed, and extensive fiscal supports were deployed. As a result, “when dealerships reopened after the initial wave of shutdowns, the average auto consumer was well-positioned to resume spending,” the reports stated.
BMO expects vehicle sales in Canada for 2021 to come in at just under two million, with U.S. sales reaching 16.6 million, with demand propped up by the extraordinary fiscal and monetary support.
Looking ahead to 2021, BMO believes that higher households’ savings rates and continued curbs on services spending are expected to bolster new vehicle demand, as well.
Additionally, the biggest potential drag on Canadian sales, high household debt levels, has been pushed to the side by the prospect of rock bottom interest rates for the foreseeable future, the report said.
“While the momentum built up over the last several months could take a hit amid surging COVID-19 cases in both countries, we see sales accelerating in 2021.”
Alongside new vehicle sales being higher than expected, the auto parts industry held up even better, BMO reported.
Despite the shift to remote working, which forecasted a decrease in demand, that is not how it played out.
And in fact, the retail parts sales held up better than vehicle sales, likely because of the increased vehicle usage for vacations amid limited summer travel alternatives.
“With a potential vaccine on the horizon, there is furthered upside for vehicle use,” the report stated.
Additionally, the report noted that with each of the “Big Three,” automakers planning to invest in their Canadian operations, “auto sector employment will grow for the first time in years.”
Moreover, these investments are in segments that are growing, such as trucks and electric vehicles (EV), rather than conventional passenger cars.
“That’s a big deal for the broader Canadian economy with auto parts production representing nine percent of manufacturing. [And] despite the severe economic repercussions of the pandemic this year, the auto sector has avoided the worst-case scenarios and is headed for a brighter 2021, assuming the pandemic is brought under control,” the report concludes.
