All right, well, good afternoon or good morning, depending on which time zone you're in. I'm AAD's Vice President of Government Affairs, Daniel Fisher. Welcome to today's webinar on fiscal trends in the Canadian economic outlook. Before I turn it over to Kyle Larkin with Impact Canada, AAD's Ottawa-based public affairs firm, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the Q&A tab at the bottom of the screen. For those of you who are, most of you probably haven't been, haven't used our new system here if you're familiar with our prior webinars. So this is a new system, though Zoom, I think should be fairly familiar to most of us over the last few months here. So again, submit questions during the webinar via the Q&A tab at the bottom of the screen. The slide deck from today's presentation is available as a PDF in the course tab on the webinar registration page. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. With that, I'll turn it over to Kyle Larkin to get our panels going. Good morning, everyone. Thanks for the introduction, Daniel. My name is Kyle Larkin. I'm the Director of Public Affairs at Impact Public Affairs. We've had the honor of working with AAD for about two to three years now on government relations in Ottawa and in Canada, and worked closely with Daniel, Brian, Mike Dexter, Bob Henderson, and the entire team. I'd like to introduce our panelists today. On the line, we have Luis Pizzeri, who's the Regional Vice President and National Accounts at Meridian OneCap. We have Dave Bridson, he's the Director of National Accounts at Meridian OneCap, and Umar Dekho, who's the Economist at the Canadian Automobile Dealers Association. We're going to start with Umar, who's going to have a brief presentation. He's going to share his screen, and he's going to go over some of the general economic forecast in Canada. So, over to you, Umar. Thanks, Kyle. Happy to jump in. I'll quickly share my screen here. Hoping everybody can see this. So we'll start off by a quick economic outlook of the COVID-19 impact on the economy, and also what's happening during the recovery of the economy across Canada. So at the beginning of this crisis, the main concern over COVID-19, when the spread of the virus was limited to the borders of China and the Wuhan province, the main concern with COVID-19 was a disruption of the global supply chain. Economists and experts were worried that the draconian measures taken by the Chinese government to shut down an entire province, the Wuhan province, would have had some trickle-down effect on supply and the supply chain across the globe. But as the virus spread outside of China and across Europe, North America, and other parts of the world, the concern was then that the economy and the global economy would have a supply shock, whereas factories were forced to close, plants were forced to close, and businesses were forced to close to limit the spread of the virus that will have a major decline into the production. What has happened as well is that by closing these businesses and taking the containment measures to stop the spread of the virus, businesses have also laid down employees. And as they lay down their employees, the consumer spending power declined significantly, which also has an impact on the economy. So we had a supply shock on the economy by the production and supply declining significantly, but we're also seeing a demand shock on the economy, on the consumer side, where people have lost their job and have lost their spending power, and consumption is declining. And as you all know, COVID-19 has had a devastating impact on the economy for those reasons. Every sector of the economy has been hit hard and no business was spared. At the macroeconomics level in Canada, GDP is estimated to have declined by 10% in the first quarter, which is quite significant, and quite frankly, one of the most pronounced decline in GDP on record for one quarter. In the second quarter, GDP is forecasted to decline further because of the artificial shutdown of the economy for close to 46 weeks during the mid-March to the beginning of May period. So that will have an overall impact on the economy for 2020. Major banks and financial institutions are projecting, and the Bank of Canada are projecting GDP to decline by 78%, which is quite significant, especially for an economy, for a small economy like Canada, that's billions of billions of dollars that the economy will be losing because of the containment measures that were necessary to spread the limit of the spread of the virus. On the unemployment side, unemployment rates spiked to 13% in April, which was unprecedented in recent years history. We also saw in the news and StatCan also released these numbers that over 7 million Canadians were able to claim the surge since mid-March. The government programs and support measures taken by the government has helped mitigate some of the impact of COVID-19 on the overall economy, and that is why we're not going to see a GDP drop by double digits by the end of this year. On the graph that I have on the left, we show here the decline in GDP across Canada for 2020. These are projections, of course, but as you can see, Newfoundland, Alberta, Saskatchewan are the province the most impacted this year. And that is because, first, they've been impacted by COVID-19, the impact of COVID-19 on their economy. But they've also been impacted by the oil price shock that has happened during this crisis. Prices have declined because of the price war between Russia and Saudi Arabia, but also because overall the demand for energy and oil products have declined significantly as people were ordered to stay home. People travel less. It was less travel with the air transportation as well, and then less demand for energy product as production declined and plants around the country declined significantly. So this is where we're at right now in terms of the impact of COVID-19. The good news is, for the most part, and we saw a report today from the Prime Minister on the projection of the infection rate in Canada, infection rates have slowed significantly in most part of Canada and in some part has been completely contained. And most provinces have started to open their economy very gradually. So that being said, the recovery is still going to be very slow and uneven across Canada because different provinces have been hit differently with COVID-19. Quebec and Ontario, for example, were the epicenter of the spread of the virus in Canada, and we'll see that the economic impact in Quebec and Ontario will also be pronounced. And it will also depend on the fiscal power of this jurisdiction to implement stimulus program and stimulus plan to support the recovery as well. Given the severity of the current crisis, there is a consensus among economists and experts that it would take close to two to three years before the economy goes back to the levels that we saw before COVID-19, pre-COVID-19. The only thing that can impact that and accelerate the recovery of the economy is the government stimulus program. So that is why it's very crucial that at this point the government start planning and bring forward a robust recovery and stimulus plan to accelerate the recovery and also to facilitate that recovery. With consumptions that have declined significantly in production that is also following that demand, we need the government to encourage consumption again. We need the government to boost consumer confidence across the country so that we can have a speedy recovery post-COVID-19. It's still going to be slow because we're in an environment of a global pandemic still. There is no effective cure for the virus nor a vaccine. And for some industry, we're going to see a very slow recovery. As consumers, we'll still be very averse to start going back into the market and consuming again and production will not ramp up to levels that we saw before COVID-19 because there's still uncertainty out there. There's still the worries about a second wave and people are still worried about losing their jobs again and being laid off. The graph that I put on the side here as well is an indication of consumer confidence. As you can see, as of March, in the second, those two weeks of March when COVID-19 was declared a global pandemic, consumer spending have declined very significantly in Canada by almost 40 percent. And as you see in April and we go towards May, when the government checks started to come in, people started receiving the CERB, the wage subsidy program started going to businesses, people started rehiring staff, consumer spending started to pick back up again and recovering slowly. We're still not out and we're still not out of the woods yet. In May, consumer spending was down by 13 percent. It's going to take a while before we go back to normal levels of consumer spending. But certainly, government measures and government stimulus can encourage that and boost that consumer spending. And that is why with our work with the Canadian Automobile Association, we focused our demand and our proposal to the government on measures to incentivize demand and to boost consumer confidence. So as people are sitting on the sideline, uncertain about the future and waiting to see what's going to happen post-crisis, we need programs out there to bring back these consumers into the market. We need programs out there to incentivize production again. We propose that the government bring a national scrappage program where consumers can get an incentive to retire the older, more polluting vehicles with newer vehicles. That's a good way of incentivizing vehicle purchase post-crisis, but also it's good for the environment. It's a win-win for everybody. And plus, the more vehicles that are sold in the country, the more taxes the government can get on that as well. For the equipment side as well, it could be a GST or an HST short-term holiday so that we can boost that demand for equipment and stimulate the construction industry with that as well. The second part of the recovery measures that we think is crucially important to the equipment and auto sector is a secure credit facility. I know the Mary Jean panelists here would like this. After the financial crisis in 2008, the federal government brought in this program to increase lending capacity in the equipment and automobile sector. Essentially, the government went out there and bought asset-backed securities to increase lending capacity there and also protect these independent lenders and financial companies from failure. And we're asking that the government bring back these secure credit facilities to encourage that, to increase lending capacity post-crisis. I will leave it like that and we can take questions at the end, Kyle. Thank you, Umar. I appreciate that everyone here appreciates that. If you just want to take your screen down so we can have it on our faces there, I'll turn it now to Louis and Dave at Meridian OneCap. I don't know if you've got your video figured out yet, but if you haven't, feel free to take it from here. Interested in hearing what you're hearing, what you're seeing in the landscape? Thank you, Kyle. Yes, sorry. I just want to, it's Louis speaking. I just want to reiterate, what we're going to talk about is really what we've seen through our lenses. Meridian OneCap has been around, the company itself has been around since 19, Meridian OneCap, which is a finance arm. We've been a leasing company, been around since 1989, 1991, that area there. So we've seen a few recessions over the years. We're an equipment finance group, and last year we did just over $600 million of equipment financing in the Canadian market. We're a pure vendor shop, so all our requests, all our funding come to our vendor partners, our vendor market. We spend a lot of time in our manufacturer programs. So just to let you know, that's the scope. That's where we see the market from, is through the eyes of our manufacturer partners and through our vendors. So I want to go back for a second to Con Expo. This was a Con Expo year, and while we were at Con Expo, this was mid-March, early mid-March. The vibe was amazing down there. Everyone was having a really good year, whether they were Canadian or American. January, February turned out to be very good months. The rental market was up. People were very optimistic about the spring season coming up. The spring season coming up, which is the biggest season for equipment movement when it comes to construction, and everything was very, very optimistic. While we're at Con Expo, though, things started to degrade very, very quickly. Now, there were rumors about some shutdown, some slowing of the economy, but nobody I don't think really had a full understanding of the complete scope of what was going to hit us. By the time we came back from Con Expo, things were shutting down. And very quickly, the timing could not have been worse for our industry. And the reason why I say that is because a lot of our manufacturer partners, this is their busiest time of year. They take orders in November, December, maybe even October the previous year. They're getting ready for the spring. Their manufacturing goes to full capacity to get ready for the spring market, especially across Canada. And this year, it was a situation when this started to hit. Immediately, dealers started to push back to the manufacturers. Manufacturers were ready to ship, and in some cases, had equipment en route to the dealers. The dealers realized what was happening. Things were shutting down. Construction, Ontario, Quebec, our two biggest markets, were shutting down. And there was a bit of a panic in the marketplace. The dealers didn't want the equipment, couldn't take the equipment except stuff that was pre-sold. And the manufacturers understood that, but also needed to get rid of the equipment and move it out of their inventory. Our floor plan group continued to support those transactions, those facilities where the equipment was ordered on or before the whole COVID thing started. One thing that a lot of us in our competition did do was we didn't put a hold, but we did ask dealers not to put through any new orders unless they spoke with their funding source. And the only reason for that is we wanted to make sure that they weren't loading up on too much inventory. And we're trying to work with the manufacturers and with the dealers to make sure that that we're helping both. We understand we're sensitive to the fact that the manufacturers need to put the stuff to the market, but we're also very sensitive to the fact that that the dealers didn't have the capacity to take on the equipment unless the market opened up slightly or their customers were taking receipt of the equipment being delivered. So it was a bit of a balancing act between us, the manufacturers and the dealers. We think we did a good job. Our dealers have, I think, done fairly well through this. And when I say done well, they've survived it, I think. One of the things we did realize is that a lot of the dealers were laying off people temporarily, sales staff, and they really relied on service maintenance parts because not a lot of equipment was moving. Kind of to Omar's comment earlier, in the first couple of months of the shutdown, people were being very conservative with their cash. So that's the market we came back to very quickly right after ConExpo, which is a big selling show, a big industry show that comes around every three years in the construction industry. I'm going to let Dave take it from here in terms of what our strategy was going into COVID to support the end users, being our customers, our dealers, customers, and to support our dealers and manufacturers. Thanks, Louie. So coming out of ConExpo, we were expecting a great year, like many of you, our busiest months of the year are April, May, and June. And then we ride that backlog through the summer and then pick right back up heading into the fall for usually a strong finish and then basically regroup and head into the next year. And we were on pace for that this year. But March turned out to be an OK month as we had enough momentum heading into COVID. But April saw a pretty severe drop in origination. So we were below 50 percent of plan for April. But it did spring back nicely in May and we were back above 50 percent of our target. And June is looking to be a very busy month. June is always the busiest month of the year, the high watermark for the year where we can really tell how the first six months of the year has gone by the end of June. And June is looking very busy with activity coming from all of our OEM partners and from all three regions of Canada. We're divided up into West, which is Manitoba West, Ontario, and then an eastern region which includes Quebec. And all three regions are experiencing fairly equal rebounds. We do a lot of business with dealer-owned rental fleets and independent rental companies. And while they were the first to see massive drops in utilizations, they are all reporting high utilization rates returning for their rental fleets. So now what we're seeing now is what happens next. Like most of the major banks on mortgages, most of the equipment finance companies and commercial banking facilities did offer some form of deferments, whether they were three to six months' worth of deferments. And people jumped on those very quickly. And a lot of it was just prudent risk management that we don't know how long this is going to go on for, so let's take advantage of those deferments. Especially in March, when people had payments coming due starting in April, we experienced a rather large influx of requests for deferments, which we were able to accommodate all those requests before payments started to come due in early April. At the start of April and then mid-April. So we have seen many people respond positively since then, that they're busy and business is going well. So what everybody's waiting for now is what happens at the end of the deferment period. So depending on the size of the portfolios, there are some larger amounts in deferments depending on the lenders, but that's what everybody's kind of waiting for now. So those deferments are going to come to an end. The ones that were on three-month deferments are going to resume making payments in July. Those that had six-month deferments are going to be coming due in October. So that's what everybody's waiting for right now, is do people resume their payments, and are contracts going to need to be rewritten? We have experienced many situations so far where people took deferments and they've come back to us now and said, you know, business is great. We need to finance new equipment and add to our construction fleets or our rental fleets or our transportation fleets. So we have seen lots of people come off deferments prematurely and move straight on to those. So that's kind of what's going to keep the industry somewhat subdued until that happens because everybody's waiting to see what happens there. And then the second part that everybody in general is waiting for is, you know, is there going to be a second wave of COVID? And if there is a second wave of COVID, it could coincide with the end of a deferment period, which could cause lots of rewrites and further deferments. But, you know, we are seeing a rather good rebound now, you know, from our office in North York. It kind of overlooks the 401, and, you know, through March and early April, traffic on the 401 was, you know, very, very slow. It was like 3 o'clock in the morning kind of traffic, which you never see in Toronto. But, you know, unfortunately, you know, for those commuters out there, traffic has rebounded, and, you know, it's probably back up to like a high summer traffic kind of zone. So it looks like, you know, the green shoots are emerging, and we are seeing that in originations and in requests. We are quite busy on the new application side. But one of the other trends that we are seeing is that larger companies that may not typically have taken advantage of our services because they would use larger banking facilities or capital markets, you know, they are using that for operating lines and then now looking to finance. So that's a positive for us that, you know, we typically see that in recessions where, you know, we get bigger borrowers than we would normally see, better credit qualities that are taking advantage of our services. And then the smaller customers, you know, that, you know, may have paid cash before, you know, and always kept money under their mattress, you know, they are keeping that money there and financing as well. So, you know, we do get to see some positive shoots that, you know, may not impact dealer business directly, but does help the finance business a fair bit. Now what we are seeing from OEMs and dealers is that they are being very careful about terms to customers and anything that is going on AR. And I suspect that is a result of things getting frozen in March and April that was, you know, delivered and not paid for. So I think AR has swollen a fair bit for some of the companies out there. So they are being careful about that kind of going forward. Perfect. Thank you. Thank you very much, Louis and Dave. So we'll just move on to a quick Q&A with our panelists here. We have a quick question from Craig Drury at Vermeer Canada. Just a reminder that if you do have any questions, there's the option at the bottom of the Zoom platform to type in your question. Once again, this is from Craig Drury at Vermeer. The question is pretty much based on, you know, what are you seeing on the impacts on the oil and energy industries in Alberta, but also the rest of the country, Umar or Vermeer on one cap, guys, do you have any comments on that? Yeah, I can I can speak to that. It's it's a bit unclear where what's going to be the impact of the energy shock that we're actually seeing at the moment. And I think the good news is the oil prices are recovering from the prices that we saw in the weeks prior to to now. We even saw negative prices at some point. Prices are recovering. And I think the projections are putting the oil prices at thirty four dollars a barrel by the by the end of the year. But I think there is a wider issue at hand here in Canada where provinces like Alberta and Saskatchewan on the issue of getting their resources to market and addressing that issue. And that is a discussion that the government, the federal government needs to have with the provinces of Alberta and Saskatchewan, Newfoundland to see where we're going on that. But until that that issue is necessarily resolved, I'm not entirely certain where this is going to go. Yeah, the only thing I the only thing I would add there, Craig, would be that, you know, the work on the Trans Mountain Pipeline and Keystone XL are still happening. You see it in the news. You see it on on their social media feeds that the construction work for those two major energy projects are still continuing. Obviously, there's some political dynamics around both of them. And with Keystone, there's political dynamics related to the United States. But but they are both going ahead despite despite COVID-19, despite containment measures with with with other industries, those are still going ahead. And, you know, the heavy equipment is there. Anything from Dave or Louis, anything on that? Yeah, I was just going to add to that. Our buying and our and our support of the market hasn't really changed. Where we started to tighten up in that marketplace was about three years ago. And and that's where we started seeing sort of the downward trends in the oil and gas and the economy slowing down there. And we've started to lend a little more cautiously in that market. But there is a core business there that regardless how low and how bad the market gets, when you're looking at the, you know, whether it's the pipeline maintenance, whether it's, you know, more of the support structures around the existing facilities, those continue and they continue to grow and they continue to to to do fairly well. So our portfolio has behaved there. But also, I do have to say, I know a lot of lenders and ourselves have been very cautious over the last three years when lending to oil and gas in the West. Yeah, that's going to be one of the differences in this recession is that in 2009, when we went through that, you know, Western Canada carried us through that recession and kind of underpinned a lot of demand. And, you know, a lot of record years took place back when oil was above one hundred dollars and, you know, anybody could get work in northern Alberta. So this recovery will be will be a little bit different with with oil and, you know, the 30 to 40 dollar range. Yeah, I think that's a it's a good segue into a quick question that I have for for you three, it relates to the comparison between now and 2008 and 2009. Obviously, it's a the economic downturn we're experiencing now is unprecedented and can't really be compared to 2008, 2009. But what you saw in the previous economic downturn was large economic impacts on the construction industry. Heavy equipment industry, anything related to to that. The difference now, though, with the current economic downturn is you see big impacts on on other industries that weren't hit in those years. So, you know, retail, tourism, a lot of industries that are female dominated. Construction has been hit, but not as much as those under those other industries that have had to completely shut down because of because of the pandemic. So in terms of looking forward at the recovery, in terms of stimulus, how do you envision the government, you know, where should they put their investments? How do you envision that that that stimulus and that that recovery phase now that it's not, you know, it's not predominantly construction, but there's these other industries that are impacted? And and how do we keep construction moving? Sorry, this is Louis from from my personal perspective, the 2009 was a market driven recession. This is this is more of a policy driven one, you know, shutting down the industries. The economy was doing very well and 2020 was supposed to be a good, good, solid year. And it was January, February were great months. So and again, please, this is just the world according through my glasses. And what I'm hoping for is that as the market opens, I honestly think that the recovery will be a lot quicker because, again, it wasn't market driven. It was policy driven, you know, and when I say policy driven, you know, government shutting down certain industries, shutting down restaurants, shutting down construction or new new new construction projects, shutting down the landscape industry for a while. So I honestly think the recovery is not going to be market driven, more policy driven. As as the policy start to open, people will get to work a lot quicker. And there is a pent up, I honestly believe there's a pent up economy just building up behind it so that as we come back, whether it's retail, whether it's restaurants, whether it's construction permits and all that stuff, there is a let's just call a pent up volume waiting to for the for the policies to to open up the economy again. Yeah, and one of the things with this recovery from 2009 was, you know, there's no one to really blame here. So I think the societal acceptance to government spending may be a lot more open, especially with the Bank of Canada buying government or provincial bonds. Like I could see the provinces spending quite liberally going forward and, you know, that spending on top of, you know, the pent up demand could result in a quicker than normal recovery, at least in Canada and depending on what happens globally, of course, as well. But I think that's where it's going to come from and not from the oil sector this time. I totally agree. The recession we're currently in was driven by an artificial shutdown of our economy. And I think in terms of monetary policy, the Bank of Canada have taken the necessary measures and they've done everything in their power to stimulate the economy while we were in the crisis. But I think most importantly, after the crisis, if interest rates remain that low, that will very well facilitate the recovery and accelerate the recovery. But I think there needs to be policies that are going to bring consumers back to the market. But as uncertainty around where the virus and the spread of the virus is going to go, it's not good for the economy. And as long as there's still no vaccine or no cure for the virus, there needs to be policy to bring back these consumers to the market. Whether the government is incentivizing consumption, whether the government keeps some of their programs that are currently here, like the wage subsidy, and help businesses toward the recovery to accelerate production, that is to be seen. But there needs to be a role for the government in the country, the federal government mainly because they have more fiscal power than all the provinces to do that. Yeah, thank you. Thank you for those those answers. Quick question from Rick Van Exen. What is the health of the trucking industry? Any comments on that? In our trucking portfolio, we have seen a higher than average deferment request within that trucking portfolio. But there again, it's still still healthy. But, you know, people are waiting to see what happens, what happens next. When we say higher, our average deferment in certain markets, for example, construction is around 12-15 percent, transportation, when we say transportation is long haul, not short haul, but long haul is 45 percent or higher. So significantly higher. But like I mentioned earlier, the traffic on the 401 has changed dramatically. You know, the truck traffic has returned. You know, now that all the retailers are open, hopefully, you know, that springs back. And we don't get a, you know, a second wave here that results in, you know, stores closing. A little to no traffic on the 401 is a rarity and a godsend, I guess you could say. Another question from Craig Drury. Is there still cash in the market available once comfort to spend comes back? Absolutely, there's I don't think there's any shortage of liquidity. I think a lot of the funding funders right now are a little worried about losses for sure. And the reserves should cover their losses. And but this is not a liquidity issue at all. Yes, it's very much business as usual for us. You know, we're looking to finance as much equipment as we can moving into, you know, late spring, early summer. Yeah, go ahead. No, I was just going to say the tough part for our industry is going to be, you know, we've always based our decisions going forward on, you know, history. And we've got a glitch now in the last four or five months. And by the time we come out of this, it could be six months of tough history. So we're going to have to think differently on how and where we lend our money and think of, you know, different measures because we can't rely on the last six months to be an indicator. Absolutely. I was just going to say it's there is not a lack of liquidity in the system. There's been a massive injection of liquidity in the financial system by the federal government. The Bank of Canada has even started quantitative easing. So there's no shortage of liquidity. Now, the only issue is lenders being worried about the losses and being worried about insolvency. And the issue is that if cash hoarding start where lenders were not lending as easily as they should to facilitate the recovery, that could be an issue. But there's not a problem with liquidity into the system. Perfect. Daniel, we've gone over a bit of time here, 11 minutes, I don't know if you want to keep going or if you want to take it away. No, I think I think that's if there's no more questions out there, I think we can go ahead and wrap this, wrap it up. So I do want to thank our panelists for joining us today. This is very insightful. Again, this webinar will be available for on-demand review after the fact, and stay tuned for further offerings from AED as with this situation, the uncertain situation continues throughout both Canada and the United States and the world. So. Perfect. Thanks, everyone. Thanks, everyone. Thanks, guys.

COVID-19

Canadian economy

recovery prospects

government support

stimulus programs

consumer confidence

economic impact