Is there even a new normal in the dealership world or is the business just in constant evolution?

Often when I speak with folks from auto retail, I often get the question “when do you think things will be back to normal?”

My answer to this seemingly simple question is not simple at all. If you are waiting for 2016 or 2017 to return, then you are going to wait an awfully long time.

If you are referring to an environment of constant change like we have had for the past 20+ years, then I’d say we are already there. Often, I find that folks are referring to new vehicle inventory levels and related new vehicle unit sales.

Other times folks are referring to new vehicle gross profit pools, to which I answer gross profit levels on new vehicles are very high and most dealerships are recording record department profitability. Other than sales volume, things are not all that bad. So why wait for the return of something that may never come?

Since I am writing this in October and the race to the World Series is in full swing, let’s go around the horn and touch all the bases to examine this return to normal concept. Think back to the Abbott and Costello bit. We will have customers at first, brands at second, employees at third and the economy at home.

Firstly, are your customers behaving the same way they used to? I would suggest that customer behaviour has changed significantly over the past few years in ways we would not have thought possible five years ago.

Shopping patterns for both the variable and fixed sectors of our businesses have shifted. Working with our customers has been both rewarding and challenging. It has been great to sell at list or above, but extremely challenging to deliver on customer expectations. As dealers we have lost much control because of inventory availability uncertainty.

Secondly, are brands behaving the same way they used to? Again, I would suggest that brand behaviour has changed. Brands have taught themselves many things they would have not thought possible five years ago.

Brands chasing vehicle margins to maximize corporate profitability have altered vehicle production and thus delivery schedules. Direct to consumer has led to hurried brand internal process changes and therefore, changes in a brand’s relationship with its dealers.

Brands are also in many ways being forced to electrify their product offerings to meet government mandates and are looking at new ways to bring that product to market to compete with newcomer single focused electric vehicle competition.

Thirdly, are dealership employees behaving the same way they used to?  Our employees survived pandemic stay at home orders only to come out with higher expectations for work from home options, many driven by childcare challenges, and in the process changing what they expect from their employers. Higher cost of living has fueled increasing wage and salary demands. On a broader scale, labour unrest is currently the norm.

Finally, is the economy behaving the same? How long will current economic conditions last? If inflation falls back to two per cent does that mean that prices will return to pre-pandemic levels, or does it mean that current prices are only increasing two per cent on a base of post-pandemic prices.

In general, post-pandemic prices are already conservatively 15 per cent to 20 per cent higher than pre-pandemic prices. The government’s target is to limit annual price increases to two per cent not reduce prices. On top of that the “R” word is being used more often and certain sectors are beginning to slack off. All this leads to headwinds in the near-term.

Thus far, I have only highlighted a few considerations. Normal has so many subcomponents to it that it is virtually impossible to return to normal.

More importantly however is the return to normal in the emotional connection we feel with customers, our staff, and our brands. This can only happen if we accept the reality that we are building a new normal on the fly.

This can only happen if we make sound business decisions using the factors under our control. This can only happen if we make the necessary changes in the way we operate our dealerships to keep pace with our local business environment.

It’s how we adjust and reset that will help us be winners in the longer run.  In reality, we must learn to partner with our brands, our customers, and our employees. The perfection of this partnership will help us build the emotional strength to be successful.

Part of building this new normal on the fly has to do with the impact of digitalization as the catalyst for change. I believe change is not solely about digitalization and digitalization is not the sole blame regarding change.

From my perspective it’s about how we choose to implement digitalization in our dealerships. Digitalization is simply a set of tools. It’s how we each accept and choose to use these tools that sets us apart. Most are not there yet and naturally digitalization is an easy target.

Automotive retail is still and likely always be a people business, run by people for people. It’s how we use the tools we chose to employ to help us along our journey that supports our emotional connection with our customers, our brands, and our employees. The business has evolved well beyond tracking how many. It’s evolved to be more of a focus solely about the how.

So, looking ahead to 2024 and back to the original question “when do I think things will be back to normal?” The answer is never!

In 2024 we will continue our collective efforts at building a new normal on the fly each and every step along our collective journey forward.

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Now is the time to make your plans for next year, especially with so much uncertainty.

In many ways I find that the beginning of fall is the perfect time to start planning for next year.   

By the time January rolls around, plans for 2024 should be in execution mode, where you realize your planned strategies and tactics. If you only start planning in January, that puts you in a position to play catch-up with your competition.   

It’s true that January and February are traditionally the slowest sales months of the year, however, many of us use this time to attend industry events and various brand meetings that take us away from our stores. As a result, in many aspects, quality planning takes a back seat.

Cautious optimism is surrounding 2024. We hope there will be a recovery, but we are not sure.

Depending on who you listen to, either the Canadian economy is headed for recession, or it might not be.

Also, some very interesting historical norms might not happen this time. For instance, the relationship between employment and recession.

Normally in a recession the unemployment rate increases as businesses adjust their labour costs to cope with the uncertainty. At this point however, it appears that employment might increase.

The pandemic effect on workers is likely at play here as many pre-pandemic workers have altered their behaviour and have sought other options.

An example for auto dealers is technicians. It seems like every dealership in Canada is looking for technicians. Various provincial strategies have been put into place to address this shortage.

Another example has to do with the decisions auto dealers made as the pandemic surfaced. Many auto dealers permanently changed or eliminated internal roles. The pandemic provided the time to reflect and gain visibility into all processes. As a result many auto dealers have already redeployed their human resources to eliminate spend creep that had slowly developed.  As business slowly returns, many dealerships have created additional capacity through new and improved processes. More individuals working differently will be required — not less.

The pandemic provided the time to reflect and gain visibility into all processes. As a result many auto dealers have already redeployed their human resources to eliminate spend creep that had slowly developed. As business slowly returns, many dealerships have created additional capacity through new and improved processes.

Planning is still very complicated and is not easy. Certain brands have had little change while others are amid significant change. Those auto dealers that own and operate more than one store may very well find themselves with several different strategies needed to comply with brand demands. Managing your individual retail brand across all vehicle brands will need to have a consistent external go-to-market message however the operating back end might be very different. This could complicate the movement of your team members between stores as you attempt to deploy the right skills into the right place.

At the moment brands are looking to have a closer relationship with customers and some are adopting strategies to insert themselves between the customer and dealer. For some brands this upsets the traditional apple cart and injects confusion.    

I have learned over the years that where there is confusion there is opportunity. Your 2024 plan should have strategies to mitigate the confusion and turn this into an opportunity for your dealership. To successfully affect the opportunity might require you to become more aligned with your brand(s) than you have been in the past. It will likely also require you to be extremely flexible and nimble as OEM plans evolve and customer reaction varies.

According to DesRosiers Automotive Consultants, the pandemic has created a backlog of more than 1.1 million new vehicle sales. Although this bodes well for future new vehicle sales, it has the opposite effect on used vehicles and fixed operations. The backlog means that there will be a lag with fewer used vehicles available and a similar lag in customers in your service bays.  Depending on how long it takes to fill the backlog, there could be a few years of continued used vehicle shortages and slower traffic through your service bays.

We are all going to have to exhibit discipline regarding new vehicle inventory levels. Although we often do not have control over this in our current push vehicle production systems, we must be diligent in ordering.

Supply shortages have been good in that it allowed reasonable gross margins to be earned with little to no inventory carrying costs. We grew up as dealers, however, always wanting large inventories. I wonder if the pandemic has created a permanent shift in consumer purchasing patterns in that ordering is now more acceptable than it has been traditionally.

Not too long ago, customers bought what we sold them, however, I wonder if we might have turned a corner where the customer now buys what they want and are willing to wait for it. If this is true, inventory levels will not need to be large. 

One historical fact has been that many vehicles were produced that customers did not intrinsically want. Today, to some extent this is happening with certain brands, in that brands are producing the models and options that maximize the brand’s profitability at the expense of customer and dealer wants. Also, some brands are attaching the purchase of extra options or branded items as a prerequisite to order and secure a vehicle.

As the industry moves forward with more clearly defined channels there will be many brand experiments, much like throwing spaghetti against the wall to see what sticks. There will be a broad spectrum of approaches. We are far from certainty and far from being able to plan our longer-term futures accurately and completely.

We are in the early innings of industry transformation. Our customers are influenced by the way they purchase all items. What they experience with other goods and services is what they will likely want to experience with auto retail. Our brands on the other hand are influenced by financial projections predicting what adopting technology can produce.

As dealers we are the most important part of the continuum. We are the glue that connects all the dots. Our success will be influenced by both customers and brands over the long-term.

In the meantime, 2024 is right around the corner and we will need to manufacture short-term wins to remain in the race towards longer-term success.

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Operating a dealership these days isn’t for the faint of heart. Are you still in the game?

At this point in 2023, we find ourselves in a very crazy world.

Dealers have many outside influences to consider as they attempt to navigate the rest of 2023 and beyond. Here are a few thoughts:

Over these past few months, we have witnessed a dramatic increase in apparent climate related issues around the world. Severe hurricanes, large scale forest fires, unbearable heat across Europe and severe flooding are all front and centre on the nightly news. Air quality globally, including Canada has been affected as jet streams spread the impact of large-scale forest fires across far off lands.   

Specific to Canada, firefighters from places like Korea, Australia, the U.S., and other places around the world are pitching in to try and control the situation. It’s a herculean task. As if there was not enough, flooding has caused incredible damage and dislocated residents and businesses. Eastern Canada has endured a hurricane, forest fires and severe flooding in recent months and other parts of Canada are battling constant forest fires.How will governments react to do their part to curb climate change. Is this even possible?

The labour unrest at the Port of Vancouver has delayed the process of economic recovery and is now a component of inflationary pressure as the supply and demand imbalance continues to drive up prices. 

All this is happening as automakers at home and abroad look at alternative vehicle distribution models.

The Bank of Canada is continuing its battle with inflation by continuing to increase interest rates which in itself causes inflationary pressures.   

Then there are still some supply disruption issues but thankfully these seem to be less and less every day.

We are all becoming aware of the risk of battery technology on safety. We are learning more every day.   

The large shipping vessel headed to Japan from Germany, at the time of writing this article was floating off Belgium. Crew had to be evacuated and the ship was left to float on its own. The fire destroyed more than 2,850 vehicles of which 498 were reportedly electric vehicles. Early speculation is that EV batteries were to blame.    

Apparently, CO₂ is very effective in putting out fires on ICE vehicles but reported is totally ineffective with EV fires. It is reported that over 100,000 litres of water are needed per car to extinguish an EV vehicle fire. However, according to reports this risks sinking the ship. After reading this in GoAutoNews from Australia I could not stop thinking about the implication of a battery fire at a local dealership.   

All this is happening as automakers at home and abroad look at alternative vehicle distribution models. Much has been said about the agency model. Most brands I have looked at seem to be cherry picking elements of pure agency and are attempting to inject these elements into their existing franchises. 

Whether dealers continue to sell new vehicles as they always have or whether they earn a fixed commission or margin paid by their brand remains to be seen. Will dealers own new vehicle inventory for resale, or will they or customers draw directly from an OEM owned pool? Will there be two streams of vehicles, one electrified and the other internal combustion or will electrified vehicles seamlessly fit into the current mix of car, CUV, truck, SUV etc. framework?

Many dealers I have spoken to are concerned about their future considering the long list of uncertainties. Has the fun gone out of the car business? With less and less ability to manage their stores their way, dealers I speak to are concerned that their future will be increasingly dictated by their brand.   

To that end, most if not all dealerships have customer orders waiting for delivery and have been carefully and painstakingly nurturing their customers as they wait month after month to take delivery of their chosen vehicles. 

The problem today, however, seems to be that manufacturers are not delivering what the customers want. In the good old days, customers largely bought what the dealer had in stock or could secure via dealer trade. Possibly because of COVID, customers could be shifting their buying patterns and could be developing a desire to buy what they want instead of simply accepting what is available. Only time will tell.

Again, only time will tell whether customers are changing how they pay to access transportation. 

In recent months, it was reported that the number of vehicles financed by leases has decreased. Leasing has been an important backbone of vehicle finance for a few decades now. We all know that leasing has been an important component of a dealer acquiring high quality used vehicles and a very important part of long-term customer retention. 

Will car sharing and ride sharing finally live up to expectation and take market share? Will working from home change how customers access transportation? Will they drive fewer kilometers, retain their vehicles longer or sign up for a subscription that allows them to change vehicles on a regular basis? 

I suspect it will be a combination of all the above with the only question remaining is market share. The cost of transportation has increased in recent years to the point where some families are spending more of their annual household budget on transportation than housing. 

According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from?

According to the CADA, 92.4 per cent of all Canadian dealers own between one and five stores each. Will up and coming second and third generation dealers be able to produce the lifestyle that their dealer parents have enjoyed? Do they possess the capabilities to operate multiple dealerships of multiple brands with multiple mutually exclusive brand processes, investment requirements and contractual arrangements? 

Finally, dealership buy/sell transactions continue to take place. You cannot look at an auto retail-based publication without seeing significant ads by dealership brokers.   

According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from? How long will values hold?

There seems to be an element of fear of missing out that is driving the buy/sell market these days. If your children are not yet ready to take over and may or may not want to or more importantly be approved as a successor and future dealer, how long do you wait in these changing times? Is it time to hedge your bets?

Everyone looks at dealers with envy. They are the pillars in most communities, providing financial and human capital support for the greater good.    

Very few of the general populous, however, truly understand the complexities of being a dealer in 2023. As the world and the business gets more complex with its far-reaching implication, successfully operating as a dealer in the crazy world is not for the faint of heart and not without significant risk.

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Words for the wise as dealers navigate the murky waters ahead.

As I was driving to a meeting this morning and listening to Squawk Box on CNBC, they were discussing the current state of the economy and what could lie ahead.

This show has been a favourite of mine for a very long time. It covers all aspects of the economy and investing, in detail examining all sides of the issues. One of their guests this morning was asked about when things would return to normal? His answer was simple.

He quickly said there is no such thing as normal. He has personally adopted the saying “Stay alive until Twenty Twenty-Five.” Based on experience, he believes that once the economy hits bottom the recovery is usually unsteady until broad momentum is created. He sees that happening in 2025. Until then the waters will be choppy, and the ride will be bumpy.

Right now, the war on inflation is being fought by rising interest rates. In its simplistic reasoning, this is supposed to reduce consumer demand and thus inflation.

The Bank of Canada believes that interest rate increases may curb or at least alter consumer spending, and if that strategy is successful, inflation will start to come under control.

I believe that it will take many months of steady inflationary declines for the Bank of Canada to begin their slow downward movement in interest rates. This might happen over 2024. Until then rates will likely continue to rise.

We are living in very uncertain times. Not all things are bad, and some sectors of the economy are doing OK.

Rebuilding might not take a herculean effort for some, but it will for others.It could seem more like a renovation as opposed to a rebuilding.   

Those of us with some experience know it is often cheaper and quicker to rebuild than renovate. Starting with a clean sheet of paper eliminates many unknowns lurking under the surface in renovations.

In any event, for the economy, renovation is the chosen strategy.

Consensus is that things will continue to be slow before they get better. The recovery will be uneven, two steps forward and one step back before stability and thus predictability will be possible.

This discussion parallels our current situation in auto retail. The supply and demand relationships are shifting. Just as we can see supply pressures easing, demand is now under pressure.

Higher interest rates are whipping up vehicle affordability headwinds. This is causing customers to downsize their vehicles just to keep their monthly payment somewhat comparable to what they are accustomed to.

The fact that most customers need a vehicle to facilitate employment means that they still need a vehicle. For those interested in continuing to own or lease their daily ride, they can either keep the current vehicle longer and hope to win the repair bill lottery, they can purchase or lease a used vehicle hoping to win the longevity lottery, or they can downsize their vehicle to better manage their monthly costs with greater certainty.

Others may turn to public transit or ride sharing but in my experience these folks also own or lease a vehicle, so other than possibly a reduction in net operating costs, they do not mess with the new or used vehicle market dynamic in a material way.

At the moment, for most brands dealer inventories are still low. Dealers are selling everything they can get their hands on, and many dealers have robust waiting lists. The coming months however will hopefully be better but still likely far from stable and predictable. Lots of wishful thinking and cautious optimism but still much uncertainty.   

The stay alive until twenty-five saying really resonated with me. After all, many factors out of our control need to come together to get us out of this quagmire. Like runners at the starting line, there will be many false starts, reloading, restarts and unfortunately disqualifications.

Adding to the automotive uncertainty is the road to electrification, brand product cadence uncertainty, product realignment, competitive repositioning, and the overall impact of new vehicle manufacturing entrants and their impact on residual market share.    

As new entrants earn consumer support, traditional brands are on the losing end.  Unless the total market grows significantly, sales volumes of some mainstay brands will continue to erode. Total market share always adds to 100 per cent. All brands competitively chip away their share as they carve their way into that market share.

The more players, the harder it is to maintain market share  per cent. Not too long ago the Canadian new vehicle market topped 2 million new units. Today the market has shrunk to around 80 per cent of that peak. That’s a lot of new vehicle sales not realized.

Some believe this has created a pent-up demand and as such, like the Field of Dreams, if you build it, they will come. Others believe the market dynamics have changed. At this point no one knows.

Vehicle brand owners are walking a tightrope. Just like the Flying Wallendas, vehicle brand owners operate largely without a safety net.   

With the winds of market change blowing strong, brands are challenged to stay upright on the industry tightrope. They are engaged in a daily battle as they decide and plan their way forward. These decisions directly impact franchise auto dealers.

Uncertainty is the order of the day for dealers as brands attempt to maintain their footing, hanging on with only their toes and balancing with the use of a flexible pole to lower the centre of gravity and manage torque to avoid rotating and falling. Dealers collectively hold the safety net just in case. In the past, dealers have been called to rescue and as such have been an integral part of the brand positioning.   

Many believe these times are different. The consumer fascination with online ordering advanced rapidly during the pandemic period. Will this consumer fascination directly translate to online new vehicle sales?

Some brands seem to be banking on this and are retooling their direct-to-consumer initiatives. This affects their go to market strategy. For some, the business relationship with their dealers is not clear, in fact it’s downright foggy.

As the economy bumps and grinds its way to health, consumers rebuild the confidence they once had and vehicle brand owners develop some clarity on their future direction, franchise dealers today are left with more questions than answers.   

Keep the ship afloat and act responsibly to preserve what you have grown. Seek opportunities that make sense for your business without risking the mothership.Keep one eye on costs. Keep the other
eye on your brand’s development and align as much as is practical that makes sense in your market.

Staying alive until twenty twenty-five seems to me to be wise words to follow.

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Optimists and pessimists have a lot to consider in the days ahead

As we peek around the corner to get a glimpse of what could possibly lie ahead, I think of the saying “is that light at the end of the tunnel or a freight train?”

With the ups and downs of the past few years and uncertainties currently blanketing the Canadian economy and automotive in particular, no one would blame anyone if they were a little gun shy.

Your individual outlook largely depends on whether you are short-term or long-term focused and if you are a glass half empty or glass half full person.

Those who are short-term focused and also glass half empty are having sleepless nights. As I have written recently, the short-term crystal ball is cloudy.      

Much has been written about price inflation, wage inflation, interest rates, labour shortage, work from home and the looming recession. It’s true, these are all causing headaches these days.    

For those who are short-term focused but glass half full, they see the supply chain issues easing, inventories begin to flow back to their stores, customers picking up their ordered vehicles, service bays full of cars, and life is looking pretty good.

They see the inflation and interest rate issue as beginning to resolve and they think 2023 will turn out to be a good year and 2024 even better.

Then there are those who are long-term focused and also glass half empty. They see lots of roadblocks ahead and insurmountable obstacles. Every bit of seemingly bad news reinforces their thinking. Planning for the long-term might involve selling their stores and retiring altogether. They have lost the ability to smile and see the good.

Then finally there are those who are long-term focused and glass half full. They see nothing but blue skies. When dark clouds do come around, as they regularly do, they put on their rubber boots, grab an umbrella, and go for a walk. They know the dark clouds will once again be replaced by blue skies and there is no use in sweating the small stuff. They are big picture people looking for opportunities.

We all know people in each of the four categories above. You are probably thinking of some now.

In short, the glass half empty folks will continue to be challenged and the glass half full folks will soldier on in search of brighter days.

From my vantage point there are many reasons to be optimistic. Perhaps it’s my 40+ years of living through the ups and downs of normal life. Life is not always sunny but it also not always cloudy either.

The sun always comes out every day, if you fly high enough. Rainy days can be some of the best days in life. What is the saying “variety is the spice of life.” Face it, you are not going to get everything right but in the end, you have to admit that you win more than you lose.

We work in a dynamic industry that many outsiders do not understand. It is darn hard to fight the battle day in and day out. Those who are successful are also lucky. They create their own luck, because their attitude pulls them through to the other side.

My mom always told me that the harder she worked the luckier she got. Sometimes you fall and skin your knees. Rather than lying there is self-pity, some of us pick ourselves up, brush ourselves off and vow not to do that again.   

We figure out how to do things differently the next time. We also share those embarrassing but valuable experiences with our team, many of whom need to skin their own knees to truly understand and become believers, listeners, leaders, and teachers themselves.  It’s not complicated if you have the right outlook on life.

So, whether it’s the light at the end of the tunnel or a freight train is largely up to you and how you look at things. So what if it’s a freight train? What are you going to do about it?  It’s not always light at the end of that tunnel. You need to learn to deal with the freight trains. That’s reality.

Over 40 years in business has taught me that life is easy when the sun shines but it’s fun when it rains and you make the sun come out. When it’s always sunny you develop the bad habit of spilling more than you pour. When it’s raining you wish you had poured more accurately and saved some for later.

Dealers and other friends often ask me what I think of electric vehicles. I tell my friends  I think they are great and for the industry folks I say it will ensure we have work to do for years to come.

Imagine the next 20 years with both ICE and EVs in our showrooms, service bays and used vehicle lots. That could be the perfect storm. It might look like dark clouds or even a freight train now but believe me, it is the light at the end of the tunnel where, by the way, the sun is shining brightly.

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We may have to be prepared for some short-term pain before long-term gains

To say that the past few years have been the catalyst to a ”new normal” would be an understatement. So many different world events since 2018, and especially since 2020, merged to create an enormous melting pot of sorts. Our industry went to places it had never been before. From the reaction of largely unrelated and unthought of ingredients, we are somehow supposed to create a new future. 

At the retail level, the retail car business rapidly became a sellers-market. From a dealers’ perspective, vehicle shortages created a perfect storm as vehicles transacted at or above MSRP, generating grosses per unit not seen for half a century, if ever. 

For some dealers, vehicle selling prices combined with lower human resource requirements combined to rekindle new-found love for the business. Profits soared to unprecedented heights. For other dealers it was a sign that it was perhaps time to cash in and move on.   

As inflation soared to levels unseen by many dealers, and as interest rates rapidly escalated, interest itself became a real expense in our P&L once again. Our costs increased exponentially without the opportunity for any further productivity gains. Those had all come at the beginning of the pandemic. 

Consumers began to walk, some backing out of conditional sales agreements and others walking away from the market due the negative impact on household cash flow. 

The combination of high new and used selling costs and much higher monthly carrying costs began to take hold to reduce vehicle demand. Homeowners with variable rate mortgages quickly changed to fixed ones. 

For those that did not react fast enough, they still today sit on the sidelines waiting to see how long the financial pressures will continue and are banking that their vehicles will last through the looming recession. 

Everything was more expensive. At the same time, the concept of working changed for many employees and business owners. 

Working from home has taken Canadian business by storm. Not only was it deemed healthier, but it also served to counterbalance increasing household budgets by allowing our customers and employees to adopt new tactics aimed at changing historical spending patterns. What used to be a monthly expense, soon turned into monthly savings. Commuting costs, childcare, deferred vacations, and other monthly savings added momentum to the work-from-home migration.

All of that was a lot to swallow in a short period of time, and I sense the turmoil is not yet finished. With 2022 now behind us, what can we expect in the year ahead?  

My hope is that as an industry we have learned from these times. My fear is that we will quickly revert to the old ways.    

Do we need huge amounts of inventory rusting on our lots? Do OEMs need to keep production plants at full capacity to churn out units that many consumers do not immediately want? Can we better match supply with demand to take advantage of the new financial equilibrium we have just lived through? 

As far as I can determine, it was not only dealers that saw profits soar. OEMs did as well. 

Automotive retail, and retail in general, live by market share. OEMs and dealers have chased market share for decades. Will this continue, or will we all focus on profitable growth rather than unit growth at all costs? 

As dealers, increasing market share has the short-term impact of a higher F&I profit pool and a long-term impact of increasing high-margin fixed operations. That’s not all bad, provided we do not give it all away on the front end. 

Hopefully we have learned that if we have the product consumers want, be it new or used, we don’t have to give it away to preserve the fixed operations profits. I believe that many of us have learned a better way to keep our customers happy and satisfied while making the kind of profits our business risks and investments deserve. 

That brings me to the move to electric. I believe this initiative is largely driven by government policy rather than consumer demand. Sure, many of us are concerned about climate change and the environment we are leaving for future generations. I firmly believe that alternative vehicles do have a place in our product portfolios. I also understand that OEMs need a minimum of vehicle activity to make sense of production costs. 

But for the foreseeable future, without government financial support, many consumers will stay away from the perceived high cost of acquisition. This creates uncertainty in the minds of some dealers, who are being asked to up their investment in a “Field of Dreams” approach. 

This also creates geographic differences in a dealer’s retail approach and inventory management. Not all markets function the same. Not all markets will have the infrastructure to support vehicle electrification. 

Serious challenges exist in multi-urban residential dwellings, for instance. In some cases, whole buildings need to be retrofitted at enormous cost, with not all owners or tenants willing or able to absorb increased acquisition costs. 

The concept that every home becomes a charging station sounds great, but a seriously high percentage of buildings cannot easily be converted. History may prove that these were just growing pains to get to where we need to get to as a society.  

My sense is that this will take at least a decade to take hold. In the meantime, who blinks first, the consumer, the dealer, the OEM, or the government? Someone is going to be left holding the bag while the rest play catch-up or don’t change at all. 

Looking ahead is not easy. The playbooks will need to be rewritten and cooperation, partnership and common sense will be required. A solid business plan where all parties share in the growth, founded upon reality and solid business principles is needed. 

Not everyone will be successful, and not everyone will progress in the same direction at the same pace. Eventually, far down the road, things might be different. Perhaps a little short-term pain by all will produce long-term gain by all. 

That might be pie in the sky or the true path to the future. One thing for sure, it likely takes more time than originally thought. Like I said, looking ahead is not easy.

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Getting out on the front lines now and again makes you a better boss and businessperson

As dealers, we are decision makers. We are called upon daily to make split-second decisions. The management team we have built most often calls upon us to validate their decisions, assuming they choose to involve us at all. We are busy people, dealing with big picture issues. We manage brand relationships, we deal with outside sources, and most often, we interact mostly with our management team.

Many of us trust implicitly until that trust is broken. After all, we pay managers big bucks to do their job and we do not want to interfere or undermine their initiative. We coach our managers and trust that our managers do the same with their reports, and so on, all the way down the line to the lowest level of employee.

Recently, I have run into several situations where dealers feel they have been betrayed by their managers. The information that flowed up channels was not entirely accurate, and as it turns out, the managers’ interpretation was suspect. 

On the other hand, I have seen situations where dealers spend a large proportion of their time going to the source. Some dealers dig into the trenches of their dealership to learn first-hand what all employees think. They observe performance, meet with customers, and meet with employees at all levels. These dealers are in a better position to assess the information being given them by their managers, and can be part of the conversation, due to their first-hand impressions.

I am not talking about micromanaging. And don’t think that I favour undermining your managers’ authority, because I do not. I am talking about being aware of what happens in your dealership(s) based on first-hand observations. 

Ask yourself, when was the last time you spent a whole shift in the service department, working as one of the team members? When was the last time you spent a day working in the parts department?

Ask yourself, when was the last time you spent a whole shift in the service department, working as one of the team members? When was the last time you spent a day working in the parts department? How about the sales floor or the used vehicle department?  When was the last time you sat in your reception area listening to verbal interactions between your staff and the dealership’s customers? 

Sure, many of you walk around every morning on your way to your office, touching base with most employees, talking about the family, their latest trip, kids’ activities etc. This too, is important, but not a substitute to working alongside them. When was the last time you had a meaningful business conversation with your employees and asked for their opinion? When was the last time you spoke to a customer at random to find out how they view your store’s performance?

All too often we rely on third-party, external surveys to inform us of what our customers and employees think about us. Our brands rely heavily on this information to assess our performance as dealers; however, this information should not be new to us. We should already know. We each should have first-hand information that we have gathered on our own. This information is more spontaneous, timely and actionable.There is little value to finding out survey results months after the fact. Our actions and responses need to be timely.

Going to the source, the place where it all happens, is vitally important. I’d like to suggest that many of your managers don’t take the time to understand what happens at the source, however for most of you, those same managers are your sole source on information upon which you base your decisions. You, as the leader within your dealership, need to take the action to ensure you are getting the right and relevant information, in a timely manner, upon which to validate decisions.

By taking this approach you are actually supporting your managers, not undermining them. At the same time, you are indirectly improving the managers,’ and thus your dealership’s, performance. You are also building credibility and trust with your frontline team members. At the end of the day, it’s who you talk to that matters.

I would also like to take a moment to comment briefly on 2023. With increasing inflation and higher interest rates coming in the weeks and months ahead, our dealerships, our employees, and our customers will be feeling the pinch.

The consensus is that we are entering a recessionary period that is predicted to have a huge impact on everyone. Employee and consumer stress will be high. If there is a good side of this, many who participated in the great resignation this past little while, will be returning to work. Also, employers in general are starting to recruit recently retired baby boomers, enticing them with creative work arrangements.   

The conversations you have in the coming weeks and months surrounding the recession will be critical. Everyone gets information from external sources like Google, blogs, Instagram, mainstream media etc. This information will shape the perceptions of your people. They will bring those perceptions to work with them.

It is then important that you control the narrative within your dealership.This will ensure your employees, and through them your customers, understand your view and the position of your dealership. This type of conversation will help increase comfort levels and trust. 

The recession will affect all businesses in a similar, but at the same time unique, manner. Take this opportunity to dialogue with your people. It’s a wonderful opportunity to build trust and loyalty and control the stress created by outside influences. Again, who you talk to, and how frequently, will determine how your dealership moves forward.

The post Who do you talk to? appeared first on Canadian Auto Dealer.

Dealers are making money but this isn’t the time for standing still

Amidst all the chaos in the world today, quite surprisingly, the atmosphere at most Canadian car dealers is one of calm.  

Despite the prolonged and continuing supply chain disruptions, Canadian car dealers are taking a measured approach which has remarkably and quite fortunately spread to most of their customers. Staff also seem calm, as do dealer principals.  

The order books are full, so too are the service bays. Business is clipping right along with strong financial performance propped up by exceptional customer loyalty. The question that no one has the answer to is “how long will this last?”

Of greater concern is the behind-the-scenes battle for data. Direct access to customers and their data throughout history have been the domain of car dealers. Customer data has been the lifeblood of dealerships. However, two significant catalysts are making big waves in the quest to monetize on future data capture. First, the move to online direct to consumer sales by some brands. Secondly, data from the connected car.

We all read and hear about various brand decisions to go direct to consumer. Some brands are beginning to say they will not sell certain vehicles through authorized dealerships but rather are seeking new business arrangements.  

New brands are emerging to facilitate this shift. On the surface, there are two wild cards at play here. Firstly, will the vehicle customer, en masse, shift their buying preference to online? 

The implied assumption is that if an OEM provides that choice, all potential consumers will avail themselves solely of that option. Secondly, all vehicles, regardless of propulsion, will require local brand representation to service customers throughout the driving life of their vehicles.

Once the new vehicle purchase transaction is completed, no matter how, the OEM has always had the ability to create customer data at the time of vehicle warranty registration. 

Leaving the potential evolving business relationship to another article, the attraction to OEMs is only made possible by comprehensive data capture. 

They can certainly access and manage the data from connected vehicles, since it would be quite conceivable that this function will be built in at the vehicle assembly stage. The mass consumer movement to online automotive retail is another matter altogether.  Customers seem to enjoy the online-offline nature of omni-channel. They like the control and being able to shift back and forth as they desire during their purchase journey. 

Once the new vehicle purchase transaction is completed, no matter how, the OEM has always had the ability to create customer data at the time of vehicle warranty registration. 

Keeping that data population current has historically been the challenge since customers and vehicles have the propensity to move around. Therefore, logic would say that OEMs need to have access to service customer, vehicle performance and driver behaviour data to be able to fully monitor the situation. This is not an easy task.

So, what could be ahead? 

For decades, the Dealer Management System “DMS” has been the cornerstone of dealership data capture. Some OEMs have in the past mandated that all their authorized dealerships use the same DMS to simplify the data exchange between dealerships and OEMs. 

In recent years, for a variety of reasons, some OEMs have expanded their list of authorized DMS providers, choosing to focus on the process of data exchange rather than the DMS itself. In this way, dealerships then had the choice to choose one of the OEM’s authorized DMS providers that best fit their organization. The advent of dealership consolidation also made single-source DMS by OEMs very difficult and costly for consolidators. 

Moving forward with the importance and possible monetization of start-to-finish data capture, OEMs have no real option other than to get into the DMS game and exert some control over the retail side of the business. This will not be met with open arms by authorized dealerships, unless a mutually beneficial and cooperative approach is adopted. 

Consolidators, in many ways, are already doing this at the retail level, however accessing the data from connected cars becomes a new challenge.  

“Customer-centric” has been a term used to describe organizations that put the customer at the centre of what they do, and the only focus of procedures and processes is aimed at providing exceptional customer experience. 

The pandemic created a new customer, and as a result, dealerships led the entire industry by responding quickly. The resulting supply chain issues then seemed to come out of nowhere to present new challenges to all vehicle brands. When combined with the change in economic indicators like inflation and interest rates, the business of moving forward will be challenging. Add in the climate change initiatives led by vehicle electrification and government mandates, and the future will be extremely challenging.  Many balls are in the air for traditional vehicle distribution that must somehow all join forces to create the opportunities of the future.

Although dealers seem calm on the outside, many dealers are not so calm on the inside. I believe this is behind the surge in dealership M&A activity. With the uncertainties of the future, some dealers have been heading towards the sidelines to capitalize on the rewards for their years of hard work. No one can blame them for looking after their families. Fortunately, there are still many buyers that believe in a strong future, and see these current times as full of attractive opportunities. 

Automotive retail has always been exciting, and once it gets into your blood, you are hooked forever.  

I believe the future of retailing will be as exciting as it has been in the past. Although there are currently many moving parts and pieces, these will be ironed out over time to create the next generation of auto retailing.  

Dealers are true entrepreneurs and have always adapted. Customers need their vehicles; this will not change. So, is today the calm before the storm? I don’t think so. I think today is the calm before future opportunities arrive.

The post Storm or opportunity? appeared first on Canadian Auto Dealer.

After a long period of economic stability, uncertainty and volatility are here. Dealers have a lot to think about

The older you get, the more cynical you become. Risk is best absorbed by the young and is supposed to be avoided by us older folks, sort of.

It is true, however, that the runway to erase the sins of the past becomes shorter the older you get.

With inflation running out of control and gaining momentum, everyone on this planet is feeling its effects every day, regardless of where you live and how much money you make.

Weekly groceries are just one example. With demand outstripping supply, especially for those food items where supply disruption exists in one form or another, an environment of uncertainty creates a hit-and-miss shopping scenario.

Forget about menu planning. You can pretty much guarantee that over 20 per cent of the items on your shopping list will be unavailable or priced so high that it hurts too much emotionally to pay the price.

As dealers, however, we are all accustomed to making split decisions every day, so we substitute a pre-cooked chicken for that prime rib roast you and your family were so looking forward to. Rising inflation means that consumers must learn to make choices.  You can swallow the higher prices or alter your shopping. The choice is yours.

The problem is that inflation is touching just about anything and everything. Some of the price increases leading to higher inflation might be warranted but many are not. Increasing prices just because others are, is happening all over the economy. Copycat pricing is alive and well in our economy.

The Bank of Canada is increasing interest rates in the hopes of stopping the rise in inflation then lowering it back to their two per cent target. Inflation rises quickly but takes its sweet time lowering itself.

For those that don’t borrow, the rise in rates does nothing to deter them from spending.  For this group, the interest rate strategy seems oxymoronic. For those that do borrow, small rate increases have little effect. It’s a question of timing. If you have a 5-year fixed mortgage, you don’t feel the impact until you renew.  On the other hand, if you have a floating rate mortgage, you will feel the impact much sooner.

Housing prices have skyrocketed. This affects those of us that are buying or building new housing or seeking new rental accommodation. For everyone else, the higher prices are anecdotal until you re-enter the market, then they become real.

As dealers, we historically borrow a lot of money, and we make a lot of money on the back of those borrowings. The spread between what we pay and what we earn has been quite favourable of late.

We are all feeling the impact of longer intervals between customer service visits. This has been gradually happening for many years, slowly eroding our service businesses.

When combined with the tune being played by vehicle and parts shortages, increasing demand and related selling prices and margins are music to our ears. But despite that favourable selling environment, we too are subjected to ever increasing input costs up and down our P&Ls. All things being equal, it is costing us more for inputs not dissimilar to what our consumer customers are facing in their personal lives.

So, the pandemic created a perfect storm of government subsidies, supply shortages and labour rationalization that in many ways are the key contributors propelling the rise in inflation.

The question becomes, are we in an affordability crisis? For us dealers, as long as supply allows us to maximize revenues, our businesses should have no problem weathering any inflationary storm. But what about the scenario where we return to excess supply and can’t maximize revenues? Inflation becomes real in our businesses when we return to price discounting.

Planning for the remainder of 2022 and likely 2023 will be a tricky exercise. When will the supply of my branded vehicles return to normal? What will the impact of short-term cost of living increases experienced by our vehicle and service customers have on demand for our vehicle and services? Will the current situation mean that people will continue to drive less kilometers due to high gas prices?

Many Canadians need their vehicles to facilitate employment but what impact will the stickiness of pandemic led work-at-home programs have on consumer demand for transportation services? Will consumers en masse quickly shift to electrified vehicles or is this still years away? How does the transition to electrified vehicles affect our businesses in the short term and what additional investments will we need to make?

We are all feeling the impact of longer intervals between customer service visits. This has been gradually happening for many years, slowly eroding our service businesses.  Moving forward this erosion could escalate. The only real solution is to increase throughput somehow.

Electrified vehicles should provide more throughput even though we will experience lower hours per repair order. When will we begin to see this impact in our service bays?

Will the current consumer impact of high inflation and increasing interest rates delay the shift to electrification in provinces without government subsidies?

Certainly, in Canada thus far, electrification has largely been a British Columbia and Quebec opportunity. In many ways vehicle electrification is closely tied to government policy. There is plenty of consumer interest but pricing, along with electrification infrastructure has been a major deterrent.

Will the current economic challenges facing consumers be a catalyst to growth in the future of our used vehicle businesses? On the flip side, will lower new vehicle deliveries in the past 24 months create a used vehicle supply shortage?

Over the past number of years, pre pandemic, we were fortunate to have experienced a stable economic environment. That is not the case today and no one knows when stability will return or even what it will look like.

Many external forces will affect our collective futures. Better days might very well be ahead of us, but the planning to get us there has never been more challenging.

The post How will inflation impact dealers and consumers? appeared first on Canadian Auto Dealer.

Things are rarely all good or all bad. Let’s take a look at how things are shaping up this year.

As I write this article in early March, some influences in our world are improving, others hopefully will improve, and the impact of others remains unknown.

Not the best environment to find ourselves in but we have been here before and are confident we can successfully navigate whatever is thrown our way.

After 26 long months, the disruptive influences of COVID 19, Delta and Omicron seem to be headed in the right direction, at least from a restriction’s standpoint. This should have a positive impact on consumer sentiment in the short and long term. 

We should however anticipate a wide range of reactions as Canadians begin their journey to a new normal. Even with health and safety mandates being relaxed, many Canadians will have comfort zone issues that as dealers we must be prepared to accommodate in our dealerships.

Consumers are facing financial pressures as everyday essential items, for example food and fuel, take an increasing position on monthly household budget cash flow.

Not quite so clear is when the end of the chip shortage and related supply chain disruption issues will be resolved. We are all anticipating a stair step return of vehicle and parts inventories.

At best we can expect an inconsistent recovery in the short term. After more than a year of severe shortages for most brands, customers seem to have accepted a build to order approach and seem to be prepared to accept, at least in the short term, that delivery delays are normal.

From our perspective, if all brands are in the same boat, the competitive playing field remains level. Should that change with some brands and models coming earlier to market than others, there is a potential to tip the playing field and thus alter the competitive landscape in the short term. Our goal as dealers is to deliver on the orders we have in our pipeline and not lose them to other brands in the short term.

The financial dynamic from the combination of high inflation and upward trending interest rates could affect consumers’ ability to complete the orders already in our order bank.

Consumers are facing financial pressures as everyday essential items, for example food and fuel, take an increasing position on monthly household budget cash flow. Add to that the impact of higher interest rates on new vehicle loans and renewing residential mortgages and you get a formula for increased financial pressure on consumer household budgets. This could affect vehicle affordability, impact consumer behaviour and vehicle demand.

These past 24 months have created an environment for major uncertainties. The good news is that we have learned to quickly pivot to ensure our customers are well served and our staff are encouraged, well trained and informed. The result has been one of the best profit years on record for most dealers.

The current war in Ukraine is playing havoc with world economics. Oil and other sanctions imposed on Russia are having an effect all over the world. Financial pressures are being felt here in Canada.

High gas prices at the pumps might be the catalyst for more fuel-efficient vehicles for some and will likely escalate the shift towards electrified vehicles for others. With many of our order banks full of committed buyers, we must ensure that we stay in constant contact with them.

Not all brands will emerge at the same pace and at the same time. This has the potential to create an uneven playing field. We are at risk of losing some of our customers in the order bank unless we are fully transparent and engage them with regular contact.

Adding to the uncertainty is the noise around changes to the auto retail model itself. Many brands are experimenting in markets around the world. These seem to be focused on the new vehicle portion of the business with various new vehicle inventory resale models emerging.

It’s very early days but online direct to consumer is the catalyst that could reshape our traditional business model going forward. This has many implications for all of us. Many of us are optimistic to be part of the changing model and others of us are not so sure. It’s very early days but the global momentum will likely spread quickly.

The good news is that we have learned to quickly pivot to ensure our customers are well served and our staff are encouraged, well trained and informed.

With the pandemic hopefully behind us, we are still faced with headwinds in 2022. We are, however, armed with the knowledge that we know how to quickly pivot and collectively have the belief we can manage our way through whatever the economy throws at us.

This gives us tremendous optimism even in these uncertain times. After 26 long months this is not the time to fall asleep and let down our guards. We are still required to navigate through unknown challenges. The difference is we now have the confidence to do so.

The post Added pressures but high confidence level for 2022 appeared first on Canadian Auto Dealer.

Let’s imagine two dealers talking about selling their businesses. What does that chat sound like?

The world has changed over these past few years and it’s unclear whether it will revert to pre-pandemic norms.   

Many of us are positioning ourselves to be ready to take full advantage of opportunities that could come our way.    

Others are wondering if their time has come, and have been asking themselves privately “do I really want to go through something like this again?”

The questioners look at the post-pandemic challenges, chip production challenges, raw material shortages, shifts in the attitude of employees present and future, possible new retailing models, return of inflation with higher interest rates, and the increasing focus on technology needed to keep brands and consumers happy and say “Yikes!”  

On the flip side, prices being paid for dealerships these days are pretty darn good and perhaps it’s time to head for the sidelines. 

The opportunists, on the other hand, never ones to back down, see nothing but blue skies on the horizon.

Let’s eavesdrop into a conversation between two dealership buds. Tim is the optimist and Dave is the questioner.

Dave is overheard saying: “I wish the good old days were here. Sure, they weren’t perfect, but they were a lot better than this, except for the profits of course. I’ve been thinking about where to go from here. Where is this all headed? How about you Tim, what are you thinking?”

Tim sits back and ponders a minute while a young waitress drops off two cold drafts and some salty nuts. He hunches over trying to keep his voice down and says, “I think you’re absolutely crazy Dave, we are about to enter the best times in our long careers and I for one want to be at the front of the parade.”

They raise their glasses, then Tim offers a quick fist pump and makes a toast to the great years ahead! Dave takes a small sip, places his glass on the table, leans back and says: “You’ve got to be kidding me, right?”

“It’s now my turn to ask you a question Dave. What are you so afraid of or are you just tired and out of gas?” asks Tim.  

Dave responds: “I’ve still got lots of gas in the tank Tim, but I am wondering where I should use it. As you know Sara and I have a family, mostly grown up now and on their own. No one in the family is remotely interested in the car business. Sara keeps hinting that perhaps it’s time to retire and enjoy what life we have left, spend time with our grandchildren and travel.”  

Dave pauses slightly, and then continues. “Sara is also worried that if I kick the bucket, she’ll be saddled with cleaning up all the business stuff,” he says, pausing to take another sip. 

“Sara wants all the business stuff taken care of before that happens. She has been talking with Terry’s wife and she says life has never been better since he sold his dealership at the beginning of the pandemic. All the business risk is off the table and she and Terry have never felt better.”

Tim replies: “Dave, but Terry is five years older than us and was always weak in the knees. He was a terrific dealer but worried way too much about what he could not control. The stress of the business got to him. Terry only had one store, granted it was a wonderful store. I wished I’d have known he was thinking of selling because I would have been very interested.”

On the flip side, prices being paid for dealerships these days are pretty darn good and perhaps it’s time to head for the sidelines. 

Dave says: “You couldn’t afford it. I heard he got 10 times the blue sky!”  

Tim snaps back: “10 times what? Terry was so conservative that he never made the kind of money he should have. He was not a risk taker, as we both know. Sure, he got what he considers a lot of money but if you or I owned that store, it would have been worth an awful lot more. His big windfall was in the real estate, he had a valuable piece of property there.”

Dave then asks: “How would you have paid for the real estate and the business?”  

“We’re getting off track here Dave,” says Tim.“But the short answer to your question is that I would have joined forces with CARS as a real estate partner and then the business acquisition price would have been very manageable. In fact, the cash saving from the potential redeployment of the downpayment alone would provide the capital to buy more stores.”

Dave then asks: “Tim, what about all the industry changes coming down the pipe. I for one find our business quite complicated these days with my brands taking greater influence over how I run my business and deal with my customers. The technology spend needed to keep pace with increasing capability requirements along with ongoing staff training is no small spend. I can only see this increasing as time goes on. On top of that, there is the whole move to electric driven by government mandates. It’ s going to take time for the customers to catch up.”

Tim sits back and nods: “I do think about those things and others but view them as temporary situations along the path.”  

He goes on to say, “I am concerned that if I do not invest and continue acquiring more dealerships and provide the individual business investments necessary to keep pace with brand and consumer expectation, time and opportunity will pass me by and I will be left out in the cold. This will still be a great business for decades to come and I want to be part of that.

Tim adds: “My son and daughter are both interested in the business and excited about the future and where the industry is headed. They have the education from the Automotive Business School of Canada and are active on my brands’ committees. They gain insight from those committees.” 

“Sounds like you’re in for the long hall Tim,” says Dave. “Having your son and daughter so involved is a huge bonus. I don’t have that luxury. Just like you though, I don’t want to wait too long to cash in and I don’t want to be left out of today’s prices either.”   

Tim closes the conversation by saying: “I guess we both have a fear of being left out, albeit from different perspectives.”

The post Fear of being left out appeared first on Canadian Auto Dealer.

The pandemic has opened eyes and disrupted the buy/sell game.

Certainly 2020 and 2021 were very interesting times.

The pandemic created an environment for significant consumer and business pressure. Some of this materialized in many industries as numerous small businesses shuttered operations.

For many employed and self-employed workers, life was anything but normal, forcing them to rely on government subsidies while curbing life’s normal habits. Many stayed home because their jobs were temporarily put on hold, while others chose to work from home to better manage family responsibilities and respecting health and safety risks.  Everyone found themselves in search of new ways of living their day-to -day lives. 

Automobile dealers and their employees were also affected. Although we were fortunate to be designated as an essential part of the economy, that did not mean that we were not turned upside down and spun around when supply disruption was added to the mix. Business and life were anything but normal.

Yet out of those significant and uncontrollable challenges came opportunity. One of those opportunities was being able to finally gain visibility and insight into our businesses.

The first ball to drop had to do with the number of employees we engaged. We had the time to clearly understand what those human resources were doing and why. 

As we laid off a good chunk of our staff, we found that things were still getting done. We quickly determined we had too many people doing things we did not need and not enough people doing the good things we did need. 

The second ball to drop had to do with technology. We were spending a lot of money on technology we did not know how to use properly. The assessment of these two things initially gave us an opportunity to focus on how we could do many things differently and hopefully better. 

White boards and flip charts in every dealership across Canada became jammed with ideas as core teams began to identify the pieces needed to build a better future.

Expenses began to come into line with the decreasing level of business activity we were experiencing. Government subsidies provided much needed cash flow while we tinkered away at our businesses, took time to learn and then plan new ways of moving forward.

Many of us realized that our businesses started changing well before the pandemic hit. In the early period of the pandemic, we began to realize that we had let too much time slip by without recognizing and reacting to those changes. We had become too comfortable again and the pandemic gave us a much-needed swift kick in the butt.

From my vantage point, dealers fell into three broad buckets.

Some dealers panicked internally but externally showed a positive front, trying to save face. This group largely stood still.

Another group of dealers sat waiting for the return to normal. They promised to themselves they would do better when everyone and everything around them got their act back together.

A third group emerged consisting of those that believed they needed to reinvent as much of the business as they could to have a better opportunity to compete in a new world.

Each of the three groups played a key role in the dealership buy/sell activity.

The first two groups were largely sellers and the third group, either held on and stood firm, bought, or sold out depending on circumstance and opportunities.

One belief became very clear as the pandemic ravaged on — things were not returning to normal anytime soon, if ever, and consumers were ready to try new things.

In the good old days, say before 2017, we all knew who our competitors were and what we had to do to outsell them. Business was predictable. The only ups and downs on the new vehicle side had to do with OEM programs.

Good ones helped increase sales and bad ones made it impossible for dealers to compete. Bad managers walked hand in hand with bad OEMs. As new vehicle sales went, so did used, service and parts. The falling tide lowers all boats. 

Sellers wanted out, and buyers were out looking for the right opportunity. It’s a situation that brokers could only dream of, and there it was right before their eyes.

F&I was the only saving grace. Changing managers rarely provided the lasting impact needed to turn things around. That’s all changed now. The business is different and will never return to the old comfortable days of the past.

Some dealers have realized this and decided to sell their stores while the values were still high. Normalized earnings calculations were all over the board. Some dealers tried to sell on pre-pandemic performance, others included the wage subsidies or a portion thereof because poor financial performance was not normal, fixed costs were adjusted up or down depending on the situation and so on and so on.

In many ways buyers were wading through uncharted waters and were excited. Multiples overall did in fact decline for many brands but remember the starting point was very high.

The pandemic did create an environment where strong dealers could and did go shopping. Sellers wanted out, and buyers were out looking for the right opportunity. It’s a situation that brokers could only dream of, and there it was right before their eyes.

The one difference is that buyers were being more selective. Smart ones focused on strategic opportunities that would add to their dealership portfolio in a meaningful way.  For those opportunities, engaged buyers were only too happy to pay a fair price.

Potential sellers came in all shapes and sizes, small, medium, large, extra-large, and double extra-large. The environment was, and still is, ripe for the big to get bigger and for many dealers and dealer groups opportunity was present to exit stage left or right and head straight for the bank.

We have seen some enormous transactions these past six months. It’s my opinion that these and other types of transactions will continue. Some dealers will sell out completely, others partially, again others might only cash in on some of their accumulated real estate value and easily allow family or management to buy into dealerships to ensure the long-term success of the business and provide an opportunity for their legacy path to continue while taking some chips off the table in the short-term.

It does not matter whether your goal is to stand firm, or increase your business presence, or increase your family liquidity. No one can argue that growth through acquisition is not good for all of us. Regardless of your point of view, everyone has an opportunity to win. How long this environment will last is anyone’s guess.

The post Everyone has an opportunity to win appeared first on Canadian Auto Dealer.