In the midst of auto industry disruption there are big opportunities and risks
The conversations I have had recently with current and future retailers covered the full spectrum of concern over uncertainty of the future of auto retailing, on the one hand, to excitement about the future of auto retailing, on the other.
That’s the beauty of my job.
I am fortunate to be involved at the Automotive Business School of Canada’s (ABSC) Graduate Certificate Program (Canada’s approach to the NADA Academy) that allows me to give back to an industry that has been so good to me and my family.
At the other end of the spectrum, my advisory business allows me the opportunity to regularly engage in meaningful discussions with the best auto retailers across North America and top industry executives.
We are living in very exciting times.However, we are in the midst of a disruption in auto retailing, starting with the vehicles themselves.
It seems whether consumers want them or not, the industry is headed full speed to redefining the sources that propel vehicles.
Not only that, how vehicles could be procured is looking more and more like new vehicle showrooms could become even less relevant in the near future than they are today, yet we continue to build them.
The used vehicle business has been engulfed by the Internet shopper. Even dealership ownership opportunities have narrowed to a point where talented new dealer candidates are all but barred from dealership ownership thanks to unsustainable prices being paid, non-existent open points and the fascination with dealership consolidators among OEMs.
I can’t help but think that we have been here before. The tumultuous years of 1997 to 2000 professed the demise of traditional auto retailing and vehicle distribution methodologies. Many of the offerings did not make sense and in the end virtually all of those initiatives were defeated by franchised vehicle retailers but not before some serious money was lost and knuckles bled from the street fights of the day. In the end dealers came out the winners and enjoyed some profitable years.
The timeframe from 2007 to 2009 also presented risk to auto retailers as dealer vulnerability showed its ugly head caused by a franchise relationship business model. Again, surviving dealers came out the winners and enjoyed some healthy years. There were casualties, however, as we lost close to 10 per cent of the Canadian dealer body.
We are now feeling the effect of the false economy created by super-long vehicle finance contracts as sales increases are beginning to flatten.
As we now pass the midpoint of many of these contract lives, (where not all that long ago would be the time a consumer would return to the market), these customers still have years to go before they return to the vehicle market.
Longer-term finance contracts that fueled vehicle sales growth are partially to blame for a seemingly softer market we are now feeling.
Also to blame are higher house prices, a generation of young people with enormous student and housing debt, and social evolution to more contract employment causing job security to be a concern.
Other factors include the demographic fact that baby boomers are working longer and millennials are not all that fascinated with owning vehicles in some markets.The consumers’ vehicle fascination with trucks right across Canada is changing the vehicle landscape on our roads and highways.
Dealer networks were built upon the blood, sweat, tears and joy of risk taking entrepreneurs that optimistically but nervously borrowed more money than ever thought possible. Success ensued and a successful and significant contributor to the Canadian economy was built. The car dealer became and to this day is the pillar in many communities.
The car business, however, has become big business. I am in total favour of dealer consolidation and at the same time I am also in favour of the much needed entrepreneurial opportunities.
Today’s younger want-to-be dealers should have the same opportunity that served founding dealers so well over the decades. Part of my sadness is that these entrepreneurial opportunities are drying up or at least morphing into something quite different.
I am aware of a situation where recently one of those want-to-be dealers had the door firmly closed by, in my opinion, an over-zealous brand owner.
As I understand it, the selling dealer and the potential buyer came to terms on all matters of importance to the seller.
The buyer had been an authorized dealer principal for a decade, possessed a relevant university degree, attended both the ABSC and NADA Dealer Academy. Money was not an issue by any means. Plans were being developed to completely renovate the dealership facilities within the timelines the vendor had indicated he had committed to. There was only one problem. The brand did not even give this person, or its selling dealer the opportunity to meet.
From the get go, behind the scenes, the brand was engaged in exercising its first right of refusal.One problem, the brand did not inform the seller nor the potential dealer that they were taking that position.
As the months passed, the silence continued with a closing date rapidly approaching. Finally, less than 30 days to closing, with financing secured, employment contracts negotiated and due
diligence completed, along with the myriad of other things needed to be in place for closing, the letter from the brand arrived. The deal was dead and all thearrangements put in place had to be unwound.
I raise this for two reasons. Firstly, it appears that the cards are really stacked against qualified prospects entering the business and secondly, the disrespect that some brands show to their dealer partners and these qualified prospects that the industry sorely needs.
All brands talk about customer service and the importance of maintaining relationships. However, all brands do not walk the talk when dealing with their dealer partners and prospects.
Today’s amazing auto retailers are incredible entrepreneurs. They were allowed to invest, take risks, grow and nurture talent. Many of today’s successful dealers are products of dealer development type programs or similar privately funded ventures.
Recently, Capital Automotive Financial launched such a dealer development program to finance worthy undercapitalized potential dealers as they embark on investment in auto dealership opportunities.
They provide the capital needed to seal the deal and the new dealer uses future profits to repay the financing. There are also many privately funded initiatives such as this and many dealer groups have their own development financing offered to store and area managers to provide them with some equity.
I believe there is room for all types of dealership ownership in Canada. Consolidation is causing an evolution and redefinition of entrepreneurship when it comes to auto retailers.
Today’s investment opportunities are within dealer groups as general managers become minority shareholder partners without the long-term prospect of ever fully owning their own store.
That reflects the reality of today in many cities across Canada and indeed right across North America. Is it bad? No, its simply different.
The fact is that we need a mix of ownership styles to feed the many faces of Canada’s vast array of communities.
