MARKHAM, Ontario -

Off-lease volumes were already going to be a tough hurdle for the Canadian auto market to maneuver this year, even before COVID-19.

But the impact of the pandemic certainly heightens the concerns around what is expected to be two “peak years” for off-lease volume, as analysis this week from Canadian Black Book illustrates.

Lease terminations for 2020 are up 25% from 2017 lease terminations, CBB said, and 2021 lease terminations are expected to be up 31% from the 2017 numbers.

“This increase in supply is arriving in the market at a time when demand is weaker than expected,” CBB vice president of research and analytics Brian Murphy said in the analysis.

“Furthermore, many leasing companies are extending lease terms by 30-90 days to keep customers happy and deal with practical concerns in the lease return process during COVID-19,” Murphy writes. “Certainly, this is the right thing to do from a customer safety and satisfaction standpoint, but the industry is creating its own COVID lease return bubble in the process.”

Off-lease volumes projected to return to the market in spring months likely won’t do so until at least July, the analysis indicates. That’s on top of the off-lease volumes already slated for those summer months and beyond, meaning prices are likely to fall even more.

“Lessees will hopefully incent dealers and perhaps even lessors to buy these vehicles upstream. Once dealers re-open nationwide, lease returns can be managed more smoothly,” Murphy said. “However due to expected shortages of new product extensions, delays are expected to be common for the coming months and possibly stretching into 2021.”

One silver lining: older used vehicles that are still in good condition will have stronger demand, so their prices will not fall as hard. Consumers are likely to opt for used-car purchases instead of new for economic purposes, according to the CB analysis.

In terms of a used-vehicle price outlook, CBB boils it down to two scenarios: the most likely scenario and a severe recession scenario.

In the former, CBB would expect a 17% decline in wholesale values of 1- to 6-year-old vehicles (18% for truck segments, 15% for car segments) against the pre-pandemic baseline for the third and fourth quarters.

Should the latter scenario happen, the decline would be 25% (trucks at 26%, cars at 22%).

As for longer-term impacts, CBB anticipates in the most likely scenario that values in 36 months would be “close to pre-virus levels with only a small impact on values,” Murphy said.

In the severe recession scenario, “the effect of the pandemic and resulting recession will still be felt,” Murphy said, with a wholesale prices down 10% from pre-virus forecasts.

Meanwhile, the residual value forecast impacts from the two scenarios would include these two ranges of change to the outlook, according to CBB: no negative adjustment to down 4% in most likely scenario; down 2% to 7% in the severe recession scenario.

Both of these would depend on residual term and vehicle segment.