Fewer kilometres travelled is having a big impact both on our industry and the economy.
It is certainly an understatement to say that the year that is 2020 has witnessed an astonishing amount of change and volatility brought on by the COVID-19 pandemic. So many elements of the Canadian economy plummeted to new lows, and now are frantically trying to stagger back to some semblance of normalcy.
With continued uncertainty all around us, this staggering and stumbling, albeit in a positive direction, is what we can expect to see for the foreseeable future, at least until an effective vaccine is available. Admittedly, many of the changes around us are temporary in nature, yet some may be longer lasting than others.
For this column, I would like to talk about something that I dearly love and is a cornerstone of our industry; and that is the very act of driving. Aside from the actual joy that many find in driving, one can also associate it with the consumption of kilometres.
There is no question that there are numerous aspects of driving that are rapidly changing, even in the pre-COVID era. The rapid emergence of battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) along with advanced autonomous features were already significant factors in the evolution of transport.
The rapid emergence of ride-hailing services such as Uber and Lyft and even the deployment of electric scooters and bikes have made us reconsider many aspects of mobility, beyond traditional driving from A to B.
One potentially impactful change, that I feel has been largely overlooked, is how much driving is or is not taking place right now, and how much will be taking place in the future…as mentioned, ‘the consumption of kilometres’.
For a moment, forgive me if I briefly use what I call “the dangerous sample size of one” to illustrate. I was fortunate enough to acquire a nice new car on March 4 of this year, luckily just weeks before the lockdown happened. I am quite shocked that now some eight months later I have only driven 7,000 km with it. Normally I would drive about 2,000 km per month, if not more.
The car should have well over 16,000km on it, by now. I have purchased drastically less gas, highway tolls, car washes, and have not even had to change the oil yet. That is just me of course. But I am not alone out here, many Canadians are consuming a lot fewer kilometres.
Gas station sales
Earlier in the year, Statistics Canada reported that 40% of Canadians were working from home. The most recent data, from the October Labour Force Survey, concludes that still, some 2.4 million Canadians are now working from home. It is difficult to measure the industry impact caused by the lack of commuting, without running about and checking all the odometers out there.
However, we can have a look at gas station sales trends that Statistics Canada does keep an eye on. Assuming that the sales of pop, chips and windshield washer fluid are similarly down, this provides some critical insight into what is really going on at the pumps, out on the roads and how much driving just isn’t happening these days. Certainly, gas prices have fluctuated during this period of time, but the trends do show that gas consumption has not rebounded to where it was pre-COVID-19.
If we look at sales for gas stations in June, July and August and compare to last year’s sales for the same period, we can see that sales are down by 15.5%. At one point in April, sales at gas stations were down by 48.5% when social distancing measures were stricter for so many Canadians.
So, we have some hard (purely circumstantial your honour!) evidence that suggests Canadians are driving less, but what does that mean? There is a multitude of potential effects on our industry.
There are currently about 24 million cars on the road in Canada, to quote data from StatsCanada’s Annual Vehicle Survey from 2009 (the last year data is available). I estimate that Canadians now drive roughly 360 billion km per year on average. If we continue our present level of reduced driving habits for a full 12 months, then we would drive about 5.6 billion kilometres less, give or take a few hundred million.
This reduced level of driving leads to lower consumption levels of all things automotive. Gasoline is the obvious front runner, but it goes much deeper into vehicle servicing, tires, collision parts (less driving is less crashing), car washes and other services.
If the present trend continues for a full 12 months, and if we change our oil every 20,000 km, this will mean the nation would purchase almost 300,000 fewer oil changes. This is a huge loss in sales and profit for retailers and the numerous aftermarket providers.
From a car sales perspective, consider the various possible changes in consumer behaviour that this could lead to. For leased vehicle consumers, they have already agreed to bring their car back in three to four years with a fixed number of kilometres or less.
For them, they are still coming to market, however, if they are driving drastically fewer kilometres, they are more likely to buy out that lease for the residual as it would be in positive equity. For some lease companies, this might be good news, from a residual value risk perspective. Lessors should expect that they will be getting back more cars with kilometres well below the expected number, which will lead to better proceeds at auction when the car is sold.
When vehicles do enter the wholesale market it is to be expected that a given model year may now have many thousand fewer kilometres on it, just due to the lack of use this year. As a result, the vehicle would be, all things being equal, worth more. Not all bad news here.
For those who finance or purchase their cars (around 70% of Canadians), how the consumption of fewer kilometres will impact sales depends on the trigger point that makes a given consumer start the purchase process. If it is time-based, so those who just buy a new car after a certain number of years, i.e. when my car is 6 years old, I go and buy a new one, then nothing changes.
However, for those who buy when they are at 100,000km (or another magic number), they will be sitting out of the market until such time when the magic odometer number appears. For Canadians who prefer to go shopping at the point when a car starts to have major component repair issues, presumably, those shoppers are going to be entering the market later than they would have, due to lower fewer kilometres driven, and most likely fewer big-ticket repairs.
Once the pandemic subsides, nobody really knows how many people will continue to work from home. In May, Statistics Canada reported that about a quarter of all businesses expect that 10% or more of their workforce will continue to work from home. To offset this, it is expected that some portion of Canadians will buy cars to avoid transit or ride-sharing, in the interest of safety from COVID.
Even in pre-COVID days, most vehicles spend about 95% of their time sitting, this number, in the short term, is expected to rise. In the current world, where more of us choose to work from home permanently, there are many potential lasting impacts.
Fleet size reduction
Consumers may consider, if they are hardly going to drive at all, perhaps use a taxi, rideshare, transit or the occasional car rental may work for them.
If commutes are eliminated or drastically reduced, then driveways that currently have multiple vehicles may see the fleet size reduced, the next time a purchase is considered. With less distance being driven, some households who may have rejected an EV purchase may now be able to consider one as a primary or secondary car.
Currently, there is a sharp short-term reduction in total kilometres driven by Canadians, due to COVID-19. However, it is reasonable to expect that more people will opt to work from home permanently, especially after realizing how much more money, is put back in the bank as a result of lower kilometres.
This, in my opinion, all adds up to an industry that is going to sell fewer cars over time, as many of us consume fewer kilometres in a new world, with new driving habits.
Brian Murphy is Managing Director, Kelley Blue Book & Data Solutions, Cox Automotive Canada & Brazil. You can reach him at [email protected]