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TalkAUTO 2021: Managing Auto’s Disruptive Recovery

Autosphere » Dealerships » TalkAUTO 2021: Managing Auto’s Disruptive Recovery
J.D. Ney, Director, Canadian Automotive Practice Lead, J.D. Power, introduces Jeff Schuster for the Managing Auto’s Disruptive Recovery session, during TalkAUTO 2021. PHOTO

Jeff Schuster takes a look at growth in the auto sector over the last year and predictions for 2022 and beyond.

On January 15, the annual TalkAUTO Conference, hosted by J.D Power and Canadian Black Book kicked off once again, with 2021 marking the event’s 10th anniversary.

As with the 2020 edition and due to ongoing pandemic concerns, the conference adopted a virtual format once again, with five one-hour sessions broadcast over the course of the week.

Kicking things off was Managing Auto’s Disruptive Recovery, presented by Jeff Schuster, President, Americas Operation and Global Vehicle Forecasts at LMC Automotive.

Schuster provided an overview of global trends in the automotive industry before diving deeper into specific drivers and dynamics impacting the market in Canada, the U.S., and Mexico.

Starting with a global perspective and focusing on economic activity, we’ve seen supply constraints impact GDP growth during 2021, with global growth hovering around 5.6%, with the U.S. and Europe seeing it at around 5%.

In Canada, it’s been a little stronger at 8% growth this year.

Segment trends

What’s interesting to note is that compared to 2020, the first half of 2021 saw gains in the automotive sector, with the semiconductor shortage only really starting to impact growth midway through the year.

Looking at specific segments, Schuster said through July, the mainstream vehicle segment was seeing a 28% growth in volume over the previous year, with premium vehicle volume up 35%.

Given the attention placed on battery electric vehicles over the last few years and particularly during the early stages of the pandemic, EV demand has seen some significant growth, fueled by companies like Tesla, as well as legacy OEMs and local Chinese players entering the space.

Moving into the third quarter of 2021, as supply shortages, including semiconductors, as well as the rise of the Delta variant of COVID, started to bite, the global growth rate declined from 28% down to less than half at 12%, with the impact affecting both mainstream and luxury vehicle sales.

Moving forward Schuster said he expected to see growth remain flat for the final quarter of 2021, with marginal improvements expected as we head into 2022.

When it comes to supply shortages, the semiconductor situation has impacted some OEMs more than others and at different stages.

They’ve also dealt with the situation in different ways, with some choosing to temporarily idle production, assemble vehicles and await chip supplies, or slow line production by reducing shifts at assembly plants.

Shifting focus toward North America, Schuster said he sees growth in the auto sector hovering around the 4.5 to 5% rate for the foreseeable future, with upticks expected heading into the second half of 2022 and 2023.

“We do have some pronounced growth as we look forward, with sales reaching around 15 million units and then increasing to around 16.3 million by 2023,” said Schuster.

Muted recovery

Zooming into the Canadian market, Schuster pointed out that much like the global market, there has been a “muted” recovery of GDP in Canada following declines in 2020.

This is a little stronger than was originally expected but with some of that growth moving into 2022 and even 2023, overall GDP growth is forecasted at around 3% moving forward.

For the Canadian market, however, there are some potential headwinds on the horizon, including rising inflation, the possibility of the Bank of Canada raising interest rates, and of course, the country’s overheated housing market.

Schuster noted that hiking interest rates in the second half of 2022 could negatively impact consumer spending, which potentially could come at a time when inventory levels are starting to increase again, presenting additional challenges for both OEMs and dealers.

One aspect that might negate that however is that given the current shortage of vehicle supply, both new and used, consumers, have seen the equity in their vehicles increase, which could boost confidence and their willingness to trade up in the next 12-24 months.

Given the lack of current stock available, many OEMs and dealers have seen higher transaction prices fueled by hot demand and fewer incentives, along with inflation.

Yet offsetting some of this added expense for consumers are the continuing popularity of longer financing and lease terms.

As far as market segmentation is concerned, Schuster says that in the Canadian market, SUV sales are likely to continue to gain at the expense of passenger cars, accounting for around 60 percent of the overall market by 2025.

Regarding electric vehicles, both hybrids and battery electrics are expected to see growth, with hybrid demand growth driven by the wider adoption of 48-volt electrical systems, while BEVs are expected to grow to around 28% of the total market by 2030, with around 60 assembly plants across North America building these kinds of vehicles.

 

Categories : Dealerships, Editorial
Tags : Talkauto, Webinar

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