The Industry is Moving Forward: Global Automakers of CanadaBy Alejandro Enríquez | Mon, 02/15/2021 - 06:00
Q: What added value does the association provide to its members?
A: Global Automakers of Canada is a national trade association representing the exclusive Canadian distributors of 15 global automakers. We also work with the Alliance for Automotive Innovation in the US on broader North American initiatives. Our mandate is to help our members with government relations and regulatory compliance issues. We deal with the issues and concerns of our members at a bureaucratic level and also at the political level to understand legislation and other particular issues. We have 10 committees that address our members’ priorities to share best practices and better deal with concerns on the different aspects influencing the Canadian marketplace.
Q: What was the impact of the pandemic on Canada’s vehicle sales?
A: It was pretty dramatic with 2020 sales ending down 20 percent from 2019. While this sounds bad – and it was as it represented the worst year over year sales decline in history-it was not as bad as the CEOs were anticipating early in the year when the pandemic first hit. During the second half of 2020, we saw sales improving every month. That being said, we had a few challenges. Some of our members had challenges arising from the pandemic shut down of logistics operations and production facilities, which caused a shortage of inventory that has not been rectified yet. This probably will not be resolved until the end of 1Q21.
The pandemic, however, brought new buyers into the marketplace, as well. Some individuals who normally used public transportation now are purchasing a new or a used car. We also saw very strong price levels and demand in the used car market, because of the new vehicle shortage, as well as the increased demand
From a vehicle retailing perspective, a major problem was the fact that provinces had different COVID-19 protocols regarding business operation. Each province has a dealers’ association and each association pressured its respective government to allow dealerships to remain open not only for service but also for the safe sale of vehicles at home, contactless delivery of via previously scheduled appointments at the dealerships.
Of note, COVID-19 probably accelerated some of the trends that were already in place, including the digitalization of the sales experience and its shift toward online channels. Dealers needed to get creative about how to deliver value and engage with consumers online.
Q: How has Canada advanced the digitalization of the sales process?
A: When the digitalization trend appeared, dealers feared that there would be no reason for a consumer to come into the dealership anymore. However, dealers that were observing the trends were already more prepared for COVID-19 from a sales perspective and the pandemic accelerated some of their digitalization plans.
I do not think that dealers are really fearful about digitalization and the online sales experience anymore because, at the end of the day, the consumer wants to be cared for and needs a facility to have their vehicle serviced and repaired. But even the maintenance aspect of the automotive business is changing with over-the-air (OTA) updates of different software repairs and the vehicle itself becoming more of an electronic rather than a mechanical device. The skill level that dealerships need at the shop is increasing as service technicians migrate from being mechanics to electronics diagnosticians.
According to several studies, customers coming into the showroom are much further along in the sales process and have narrowed down their vehicle choices and purchasing options significantly through online research before they ever leave their homes. Dealers do not have to convince the consumer of the virtues of the vehicle. It is more about improving the whole sales and aftersales process.
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Q: How are electric vehicles influencing the Canadian marketplace?
A: We have a federal government that is very proactive on climate change. By 2025, the goal is for sales of electric vehicles to represent 10 percent of total domestic sales. This target increases to 30 percent by 2030. By 2040, all vehicle sales should focus on full BEVs or PHEVs. These targets are similar to those established in other parts of the world. Some provinces have even legislated that by 2040, no ICE vehicles will be sold.
At the moment, EV sales in Canada are at about 3 percent of total vehicle sales. Growth has not been what was expected considering the available federal government incentives, which can be up to CA$5,000 (US$3,900) for a full EV or around CA$2,500 (US$1,900) for a plug-in hybrid. The province of Quebec, which is the leader in the transition toward EVs, offers around CA$8,000 (US$6,300). Incentives can be stacked up so any province that has an incentive can be added to the general federal incentives, reaching in most cases up to CA$10,000 (US$7,800). This has moved the needle but not significantly.
People do consider an electric car but it seems that the cost and the lack of charging infrastructure remain obstacles. Even though consumers say they will consider an electric vehicle as an option, they do not necessarily buy one. Governments and industry are trying to figure out why this “gap” between what consumers say they will do on a survey and what they actually do when they purchase a vehicle.
Q: What are the challenges to growing EV infrastructure?
A: Some private companies have begun to construct infrastructure. For instance, Volkswagen has invested money in charging infrastructure, setting up a subsidiary – Electrify Canada – to install charging stations. Tesla places its own infrastructure where it operates. There have also been public-private partnerships to install EV infrastructure. People living in multifamily units also report a lack of chargers because of the design of the buildings and the lack – in many cases – of regulatory requirements for at least the roughing in of infrastructure to facilitate the installation of charging stations Provinces and municipalities should be involved in addressing this.
Although infrastructure is still an issue, the reality is that battery technology and energy density are improving, providing vehicles with a greater range. The government is finally seeing the benefits of hydrogen and other technologies but these technologies are still in their infancy.
Q: What is your perspective on connected and autonomous vehicles?
A: Connected vehicles communicate with other cars, the road infrastructure, and the internet. There are cybersecurity challenges associated with that, which have prompted innovation. Five years ago, there was not that much concern about this but CV2X put this in perspective. Technology is also making its way across the industry, from luxury vehicles to the volume market. The vehicles we see with ADAS today are not the same as three years ago. As the technology becomes cheaper and widespread, vehicles will reach higher levels of autonomy.
Fully autonomous vehicles are generally restricted, to my knowledge, to certain geofenced areas and very specific applications. It will be several decades before level 5 automated vehicles are broadly employed
Q: How is USMCA influencing automakers’ operations in Canada?
A: It is more complex for vehicle manufacturers but for the auto parts sector in Canada the new trade agreement with the US and Mexico has been beneficial to Canadian parts makers. The reality is that the US$16/hour wage provisions were put in place to bring back manufacturing operations to the US from Mexico, however, Canada can benefit from that in recapturing part of that production, as well.
USMCA should be beneficial to the industry but let us make no mistake about it: This is not a free trade agreement; it is a management trade agreement. The reality is that provisions in USMCA will potentially make the automotive industry in North America less dependent on foreign markets. In a way, it unnecessarily increases the price of vehicles because instead of manufacturers looking globally for auto parts and components at the lowest possible cost and highest quality, they are forced to look for them regionally to meet the content provisions under USMCA to secure preferential tariff treatment
Q: Where is the automotive industry in North America headed?
A: From a Canadian perspective, policymakers and the federal government have been pushing the industry toward electrification. There has been some resistance to that because you need to have people who can afford those vehicles and you need a significant base of purchasers to absorb 200,000 – 300,000 vehicles produced annually by a production facility. Nevertheless, there have been advances. GM announced last week that it would build an electric transport vehicle at its Ingersoll facility in Canada.
The country has its own Silicon Valley in Ontario, hosting leading technology companies, clusters, and universities supplying components for electric, connected, and autonomous vehicles. Traditional manufacturing is not going away but it is more susceptible to slower growth. Our goal now should be to drive the industry’s transition forward from where it is now, from ICE to decarbonized vehicles.
Another thing manufacturers are realizing is that they cannot be only vehicle manufacturers anymore. If they want to remain in business 20-25 years from now, their goal is to become mobility services providers. Companies are asking themselves: what is it going to take to be around in the future? How do I, as a company, transition to something that is going to be much different from what it is now? The automotive industry will change more in the next five to 10 years than it did in the previous 100 years.
Global Automakers of Canada is an association that represents 15 global brands with sales operations in Canada.