In the first of three webinars hosted by Templeton Marsh, guest speaker Michael McGhee, Senior Vice President and Division Head, TD Auto Finance provided insight into potential outcomes for dealers.
With the COVID-19 crisis continuing to provide a great deal of uncertainty, not only across Canada but also the entire globe, dealers are looking for information to help them navigate through these treacherous waters. In an effort to help provide some assistance, Templeton Marsh recently announced a series of webinars focusing specifically on COVID-19 with leading industry experts and professionals weighing in some of the key issues impacting the automotive manufacturing and retail sectors.
On April 23, the first of these webinars, entitled The Impact of the Pandemic on Our Industry, took place at 2.00 pm Eastern Daylight Time, hosted by Templeton Marsh Managing Partner Samir Akahavan and featuring guest speaker Michael McGhee, Senior Vice President and Division Head, TD Auto Finance.
In an interview with Canadian Auto Journal prior to the webinar, Samir Akahavan noted that because the situation around COVID-19 continues to evolve so rapidly, often day by day and sometimes hour by hour—trying to get a handle on valid information can be difficult, especially with so many different opinions out there.
Different scenarios, different behaviours
Akahvan says that in terms of how dealers are reacting to the COVID-19 crisis, opinions and situations are as varied as they would be among different used car managers at different stores when it comes to specific make and models. He notes that there are dealers who appear able to weather the storm for the next few months, while some are panicking and looking at ways to liquidate their assets, even when at closer inspection, they have solid balance sheets and at present at least, don’t actually need to panic and react to “what if” scenarios.
Ultimately, many of our dealer customers are asking the same question. How long is this current situation going to last, and what do I need to do in order to survive it?
— Samir Akahavan, Managing Partner, Templeton Marsh
During the webinar on April 23, TD’s Michael McGhee noted that the economic disruption caused by COVID-19 has caused a great deal of concern both among consumers and dealers. On the consumer front, he noted, that typically, TD Auto Finance receives around 3000-4000 calls per day from consumers—since COVID-19 hit, that number has increased to around 25,000. “Clearly there is a lot anxiety among consumers across Canada,” he said.
McGhee noted that TD, as well as many other banks and lenders have adapted and changed business practices to help their consumer and dealer customers.
To help ease anxieties among dealers, TD Auto Finance has made changes to help them manage their cashflow through the COVID-19 crisis, as cash and liquidity takes on increasing importance. These include deferrals on products such as Floorplan financing, term loans and mortgages through May. “We have and will continue to work with our dealer customers on a case-by-case basis,” said McGhee.
He also noted that emergency response programs available through the Government of Canada are something dealers should take a closer look at, if they haven’t already. These include the Canadian Emergency Business Account (CEBA) which provides a $40,000 interest free loan with $10,000 forgiven if the loan is paid off by a specific date. Even for those dealers that don’t qualify for this (the criteria is that the business had to have a payroll of between $20,000 to $1.5 million last year), there are other programs such as the Canadian Emergency Wage Subsidy (CEWS) that provides qualifying businesses with 75 percent of employee wages. Additional programs are being rolled out, including short-term loans with payment terms from 18-24 months, all designed to boost liquidity by aiding operating expenses during the lockdown period.
In looking at specific dealer markets, McGhee notes that one area that has been impacted is the used car sector. Data from Canadian Black Book points to a 15 percent decline in used car values while many auctions either aren’t operating or if they are, at severely reduced capacity, with volumes reduced as much as 70 percent in some cases and no sale rates for vehicles as high as 90 percent.
Because many banks and lenders have also temporarily ceased repossession activities since COVID-19 the middle of March, McGhee said that, as of April 23, it was still too early to tell how the used vehicle market would perform, especially once lockdown restrictions start to ease.
Surge in demand?
There are some expectations, that post COVID-19 there could be a surge in demand for lower priced used vehicles, as well as higher than normal rates of lease returns and these combined trends are likely to continue putting downward pressure on used car prices at least for the short term.
On the new vehicle front, OEMs have and are likely to continue offering generous incentive programs to help consumers purchase vehicles and continuing low interest rates are expected to help encourage the sale of new cars and trucks. Low fuel prices are also likely to help, though McGhee noted that higher overall prices for pickups and SUVs mean that if and when it comes, any pent up for demand in sales is likely to hit lower priced segments first as a sizeable number of consumers will likely have tightened their purse strings to deal with their own personal finance situations as a result of COVID-19. It therefore could take longer for hugely profitable pickup and SUV sales to fully rebound.
Additionally, McGhee noted that there is some potential positives in the fact that with the Canadian dollar remaining relatively low against the U.S. Greenback, there could be some good export opportunities for dealers and Canadian businesses–especially as many analysts predict—the U.S. economy is likely to open sooner and possibly faster than Canada’s. That being said, the pace of U.S. demand will probably hinge on how well consumers south of the border have been able to weather the economic storm caused by COVID-19.
Change for the better
“Although nobody is certain when this will end,” said McGhee, “I do believe that our industry and the way we do business will change for the better. Many dealers have already made changes to their business and these different operating models have and will continue to be the ‘new normal.’ As we continue on the other side of this crisis, these are models that will likely become stronger.” Some of these models and practices include dealer pickup and delivery services as well as the ability to perform transactions online and remotely for those customers that want them.
In summarizing, McGhee said that, “while the automotive industry has always faced adversity, it has proved resilient and able to adapt among changing economic conditions. Not only will we come out of this COVID-19 crisis, we will do so as an industry that is both stronger and wiser.”