Automotive News Canada - June 2019 - v2 - 4

4

* JUNE 2019

Traffic flows across the Ambassador Bridge between Windsor,
Ont. - the home of the Rafih Group - and Detroit. Some Canadian
dealership groups are venturing into the United States
to diversify locations and brands, but are discovering
that their business practices don't always bridge the border.

FOR DEALERS CROSSING
INTO THE UNITED STATES

THERE ARE BARRIERS
The United States has
appeal to Canadian
retailers, but it's a different
country with a different
customer culture
By MELISSA BURDEN

AUTOMOTIVE NEWS, DETROIT

TERRY RAFIH SEES NOTHING BUT
growth potential for his retail automotive business when he looks across the
border into the United States from his
base in Windsor, Ont.
Rafih - CEO of Rafih Auto Group,
PHOTO: RAFIH AUTO GROUP
with 19 rooftops in Ontario - re-entered the U.S. market in March when
his group bought three luxury-brand
dealerships in northeast Ohio.
"Canada or U.S. to me is the same.
It was an opportunity that came up,"
said Rafih, who a few years ago sold two
Mercedes-Benz dealerships along the
East Coast of the United States.
"If another opportunity comes up in
the U.S., we would be more than willing
TERRY RAFIH
to look at it.
CEO, Rafih Auto Group
"Geographically, it's important. The
U.S. is a big country. So is Canada. So
ideally the Midwest region of the U.S. is
tiple premium and luxury brands in
the area that we are focusing on at this
Normal, Ill.
point."
But just months later,
As dealership consolwith its 2018 second-quarter
idation continues and
earnings, AutoCanada had
many groups look to grow,
to take a $44 million impairsome Canadian dealership
ment charge to write down
groups are entering the
the value of the U.S. busiUnited States to diversiness.
fy location and automakAnd in its first-quarter
er brands. Sibling publiearnings, AutoCanada noted
cation Automotive News
challenges with high cost
identified at least six
structures in its U.S. operCanadian auto retailers
ations. Operating expenses
that have forged into the
exceeded gross profit by $7.2
Barely a year after
United States with recent
million.
AutoCanada bought
acquisitions.
In May, the company -
nine U.S. dealerships
with 66 franchises, includCROSS BORDER, HIT WALL for $135 million,
ing 14 in the United States
Executive Board
But running business- announced a plan that
es in two countries can be Chairman Paul
would involve cutting operAntony said some
difficult, as AutoCanada
ating expenses at its U.S.
of those stores "will
Inc., the country's lone
dealerships and "optimiznot be able to attain
publicly traded auto dealing our U.S. portfolio with a
profitability within a
ership group, has learned. period of time that's
view to creating a sustainIn April 2018, the
able platform in the U.S."
acceptable to us."
Edmonton-based corpoPaul Antony,
FILE PHOTO
ration bought nine of 10
AutoCanada's executive
dealerships in the Grossinger Auto
board chairman, told analysts in an
Group of Chicago for $135 million. The
earnings call in May that the compadeal included eight dealerships in the
ny thinks some U.S. dealerships can
Chicago area and one rooftop with mulbe profitable in the near future, "while

Canada or U.S. to me is the
same. It was an opportunity
that came up.

I L L U S T R AT I O N B Y
AUTOMOTIVE NEWS CANADA
AND ISTOCK

some stores will not be able to attain
Montreal in the summer.
profitability within a period of time
In March, HGregoire opened HGreg
that's acceptable to us."
Nissan Delray in Florida after acquirAntony described the need to
ing its first franchised new-vehicle
change U.S. pay plans by moving away
store in the United States.
from guaranteed employee salaries to
HGregoire President John
performance-based pay. He also noted
Hairabedian said its growing netproblems with advertising
work of used-vehicle stores
budgets and overpaying venin the United States gives
dors in "an astronomical
the company access to an
fashion."
abundance of inventory
AutoCanada declined
that's needed for Canada.
to say how many stores it
A weak loonie relative to
wants to shed, although
the U.S. dollar has driven
Antony told analysts that
American dealers seeking
AutoCanada will be looking
a discount on used vehicles
to improve dealerships withto Canadian auctions, keepin 12 months.
ing supply low north of the
Chris Murray, an analyst
border.
with Toronto-based AltaCorp
In recent months,
Farid Ahmad of
Capital, said some nuancHGregoire has expandDealer Solutions
es differentiate the U.S. and
ed its U.S. presence, openNorth America
Canadian markets. But with
ing a used-vehicle store in
says some of the
AutoCanada's U.S. acquisiOrlando, Fla. Another is
larger dealership
tion, he said, "There were
planned to open in Miami
groups in Canada
really some issues with the
this year.
are buying U.S.
due diligence at the front
stores, and a few
end."
U.S. CONSUMERS DIFFER
smaller groups
have purchased
While American and
M&A FIRMS CROSS BORDER one store. It's a
Canadian buyers share
With buy-sell interest
trend he thinks will similarities, Hairabedian
will continue.
across the U.S.-Canada borsaid HGregoire has had to
der, some merger and acqui- F I L E P H O T O
adjust to the U.S. market.
sition companies are openConsumers there expect to
ing offices in Canada. In March, the
have a vehicle they buy delivered to
Tim Lamb Group from Columbus,
them almost instantly, while delivery
Ohio announced new offices in
can take up to two days in Canada.
Edmonton and Toronto.
The types of vehicles HGregoire
In the fall of 2017, Dealer Solutions
stocks in Quebec and Florida also difNorth America of Markham, Ont.,
fer. The group's top-selling brands in
expanded into the United States with a
Florida include Mercedes-Benz, BMW
Detroit-area office.
and other luxury vehicles; while in
Company CEO Farid Ahmad said in
Quebec, customers like more mainan email that some of the larger dealstream brands.
ership groups are buying stores in
"We've seen more buyers gravithe United States, while a few smaller
tate toward affordable luxury in the
groups have purchased one store.
U.S., and in Canada we see buyers go
"We believe this will continue to
toward fuel economy, electric cars and
grow," Ahmad said.
smaller cars," Hairabedian said.
Last year, Alpha Auto Group of
For Rafih, managing businesses
Toronto bought Wilsonville Toyota
across the border is easier with techand Wilsonville Subaru in Oregon.
nology. In Ohio, Rafih Auto Group
In 2017, OpenRoad Auto Group of
also named Helder Rosa, who had 14
Vancouver purchased a luxury dealeryears with previous ownership, as
ship in Bellevue, Wash. A year before,
vice-president of operations. And a
Birchwood Automotive Group of
plane ride to Ohio is just 20 minutes,
Winnipeg acquired a Chevrolet-Buick
Rafih said.
dealership in North Dakota.
"It's very easy for us to visit the
Another company to jump over
campus and help in managing or
the border is HGregoire. In 2010,
directing or assisting the team that's
the Saint-Eustache, Que., company
there," he said. - ANC
began its U.S. journey with used-vehicle stores in Florida, a state where
Toronto Bureau Reporter John Irwin
it warehoused convertibles to ship to
contributed to this story
Automotive News Canada - June 2019 - v2

Table of Contents for the Digital Edition of Automotive News Canada - June 2019 - v2
