Canadian Auto Finance Trends: Navigating the New Normal
As witnessed on a global scale, the coronavirus (COVID-19) pandemic has struck a blow to many retail industries, arguably amongst one of the hardest hit being the automotive sector. Industry sources estimate global auto sales could be down 20 per cent year-over-year (YoY) in 2020. Canada, after showing some positivity in January and February (up 0.7 per cent and 2.1 per cent YoY respectively), was down 48 per cent YoY in March, dropped an estimated 75 per cent in April and was down 44 per cent in May. For the year, the Canadian baseline scenario for new light vehicles is estimated to decline 25 to 30 per cent; used light vehicles are expected to also feel a drop, but to a lesser extent at around 10 per cent.
Financing of a vehicle is a key part of the automotive cycle and with the onset of the pandemic, many consumers experiencing financial hardship with leases or loans have had options to consider payment deferrals and/or case-by-case reviews of accommodations by their lending institutions. However, with unemployment expected to swell again to around 16 per cent, 8.3 million Canadians having applied for either employment insurance or Canada Emergency Response Benefit (CERB) as of the end of May and indication of just over 1 in 5 Canadians living in households reporting difficulty meeting financial obligations, delinquencies as a lagging metric, are expected to turn upwards in the coming months.
As we optimistically await downtrends of COVID-19 cases in Canada, this article reviews credit-based insights for lenders to keep in mind as we approach a new normal for the Canadian auto finance industry, including:
- Past economic distress scenarios
- Recent credit-related trends
- Future of where we may land as a new normal
You can read or download the complete report here from Equifax Canada Co.: Canadian Auto Finance Trends: Navigating the New Normal