J.D. Power & Associates says the success of Canada’s June new-car sales boils down to one factor: 84-month captive OE financing.
Analysts at the data firm said June, the traditional start of the summer selling season, was the “least bad” month under the pandemic.
That’s still about 21% under the June 2019 mark, but an improvement over March, April, and May, with some 155,439 units sold.
“Nearly all of the success we witnessed in June was down to one single sales strategy: captive financing of a new vehicle at 84 months at low APR+ some cash incentive,” analysts said in the July 9 Canadian New Vehicle Retail report.
The report, which offered a look at the June 2020 retail landscape, revealed
The proportion of all industry financing in the 84-month term gained 10 points of share vs. June of 2019 (47% vs 37%). Incidentally, 96 month was down during the same time.
Finance type of sale increased again, from 53% to 61% of all transaction, with losses for both “cash” deals and leasing. This is up vs. last month, and last year.
The frequency distribution of APR essentially at “0%” (by “zero” we mean “0.9%” or lower) increased dramatically from 26% last year to 42% this year.
Even for luxury marques, the proportion of financing deals essentially at “0%” increased dramatically from 19% to 55%. Note that more than 1-in-5 luxury vehicles are now financed.
Other insights include the fact that finance payments remain at last year’s average level of $660 monthly.
And same-brand trade-ins have returned to pre-virus levels, with an average of 49% of trade-ins at a dealer being of the same brand. So, there is less deal closing this month on “conquested” buyers, on average.
Luxury brands continue to be especially hard hit, front end margin is depressed from 4.5% to 3.6%, or on average $700 per unit, potentially a loss of $350,000 in vehicle front end profit for the average luxury dealer.