One of the more interesting comments stemming from Trader’s annual Carology online event, which took place April 20, was that Canadian household savings have gone through the roof during the pandemic, but are estimated to return to pre-COVID levels by the end of 2021.
That is according to Baris Akyurek, Director of Marketing Intelligence at Trader, who pulled the information from RBC Economics, Navigating 2021: 21 Charts for the Year Ahead (published December 2020).
What is interesting about the finding is that the household savings rate of disposable income, which is estimated to have reached 28% in the midst of the crisis in 2020 from 3% pre-COVID, could be used to purchase vehicles, both new and used — and to an extent consumers have been buying cars. But right now household savings sit at 12.7% as of January 2021, and should decline to approximately 4% by year’s end.
“Now I have to be honest, when I saw this I thought it was too aggressive. Like, there’s a hundred billion dollars in the economy and it’s expected to be spent in the next few quarters? I questioned this,” said Akyurek. “So what we did was we looked at its previous financial downturns and considered what happened to the savings rate in the previous downturns.”
With the exception of the last 2008-2009 (financial) recession, Akyurek said other crisis events dating back to 1981 indicated that the savings rate returned to its previous levels within a year. This includes the energy crisis stemming from the Iranian revolution, the Gulf War in the 1990s, the dot-com bubble, and September 9/11 in 2000.
“The more interesting finding here is that 64% of these consumers who saved money said that they’re planning to use the extra savings to purchase a vehicle.”
— Baris Akyurek, Director of Marketing Intelligence at Trader
But what about the financial crisis? Akyurek said the difference has to do with the nature of that downturn; it has nothing to do with what we are going through right now — the COVID-19 restrictions, lockdowns, and health concerns. Going back to the RBC forecast and looking at previous downturns, Akyurek said they believe that consumers are going to keep spending the money that they have in their savings account.
He said the company worked with a third party research company to understand how this additional money is going to impact the automotive retail sector.
“We asked Canadians who are planning to buy a vehicle in the next six months — we asked them whether they have saved any money during the pandemic, and almost half of these people (45%) said that they did,” said Akyurek. “But the more interesting finding here is that 64% of these consumers who saved money said that they’re planning to use the extra savings to purchase a vehicle.”
What is more interesting is that 29%, almost one-third of consumers, said they were not planning to buy a vehicle before COVID, but are not considering doing so since they have the savings available in their account, according to Akyurek.
“We believe this additional money in Canadians’ accounts have created this quote-unquote new demand that’s going to be coming to our sector,” said Akyurek, adding that almost a quarter of the consumers that said they would purchase a vehicle within the next six months by using the additional money in their savings account would purchase a more expensive vehicle.
If the research proves accurate, dealerships should enjoy a boost in sales from that new demand.
