MARKHAM, Ontario -

Along with updating its most likely and severe recession scenarios for how wholesale prices might perform, Canadian Black Book began its latest COVID-19 update with what analysts declared to be “good news.”

Canadian Black Book highlighted on Monday that those positive developments stemmed from what’s now happening in provinces like Ontario and Quebec.

“While there certainly will be many new precautions, restrictions and processes in place to protect everyone in this new normal, for the first time in quite a while, dealers in Ontario and Quebec (outside of metro Montreal) are open for sales,” Canadian Black Book analysts said in their newest update.

They pointed out that greater Montreal-area dealers will be able to re-open their sales showrooms on May 18. Canadian Black Book estimated those two provinces represent approximately 65% of new-vehicle sales in Canada.

“In our business, everything stops and starts with auto retailers. And with the sales lights back on, this signals the start of a recovery for our industry,” analysts said.

Canadian Black Book continued by mentioning some positive developments involving wholesale market activity in Canada, too.

“There are now consistent positive patterns emerging nationwide. The sale rates at auctions are improving dramatically, since bottoming out over the last several weeks,” analysts said of conversion rates improving from below 10% to above 50%.

“That said, we still believe that buyers and sellers are not on the same page when it comes to pricing. However, we do expect there will be more agreement in the market in the coming weeks regarding true prices in this volatile market,” analysts went on to say.

At this juncture, the upbeat developments contained in Canadian Black Book’s latest COVID-19 update ended.

Analysts noted information from Statistics Canada that showed the unemployment rate rose 5.2 percentage points to 13.0% in April. The rise came after the increase of 2.2 percentage points in March.

Canadian Black Book recapped that the April unemployment rate was the second-highest level ever, trailing only to the 13.1% reading observed in December 1982.

“It should be noted that the April unemployment rate would be a staggering 17.8% when adjusted to reflect those who were not counted as unemployed for reasons specific to the COVID-19 economic shutdown,” analysts said.

“After the COVID-19 crisis is resolved from a public health standpoint, the lingering effects will be the recession this virus will leave in its wake,” analysts continued. “With record-high unemployment and rock-bottom consumer confidence, there will be a pronounced temporary change in behavior for vehicle consumers.

“Some, but of course not all, will rethink or postpone their vehicle purchases, which will result in the expected decline that analysts, including Canadian Black Book, predict,” they went on to say.

And speaking of predictions, Canadian Black Book also refreshed its industry outlook for wholesale prices, beginning with its most likely scenario.

Analysts projected a drop in wholesale prices by 17% for 1- to 6-year-old vehicles compared to a pre-virus baseline arriving during the third and fourth quarters as the economy starts to recover from the effect of COVID-19. That overall decline includes an 18% decrease for SUVs, vans and light trucks and a 15% drop-off for cars.

Looking ahead 36 months, Canadian Black Book said, “The effect of the pandemic will be felt, but we project that values will return to close to pre-virus levels with only a small impact on wholesale values.

Analysts added their residual value forecast will drop by 4% to 0% (meaning no negative adjustment), depending on the term of the residual and the vehicle segment.

Finally, Canadian Black Book closed with its severe recession scenario, which analysts said would be created by a “prolonged social separation policy due to COVID-19 that stretches into late summer and early fall.

“This scenario could also be brought on by a prolonged feeling of insecurity by consumers,” analysts went on to say about the likelihood of a deep recession that would result in a 40% drop in new-vehicle sales in 2020 to 1.149 million units

Under that dire scenario, Canadian Black Book predicted a 25% drop in wholesale prices of 1- to 6-year-old vehicles compared to a pre-virus baseline. That figure stems from a 26% decline for SUVs and light trucks and a 22% drop for cars.

Considering the market 36 months from now, analysts expect the effect of the pandemic and resulting recession will still be felt, project a 10% market level decline of wholesale prices compared to pre-virus projections.