Automotive News Canada - September 2020 - 21

* S E P T E M B E R 2 020

Dealers suffer as inventory shortage drags on
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to get their payments back on track.
CBB expects a surge in lease returns
and repossessions through the end of
the year, which might ease shortages
on the used-car side.
The rebound from the darkest
days of the pandemic caught much of
the industry by surprise, said Trent
Hargrave, dealer principal at Riverside
Dodge in Prince Albert, Sask.
He weathered the storm by maintaining his orders and planning for a
sales uptick.
"We looked at the long-term ramifications and decided
the economy wasn't
going to be in free-fall
forever." Hargrave
expects annual sales
to be at about 85 per
cent of a typical year.
"We can live."
Hargrave said
Hargrave:
one indication dealFielding calls
ers are under pressure is the geograph- from as far
away as British
ic spread of peers
Columbia and
calling him looking
Ontario.
for certain models.
Normally, those calls F I L E P H O T O
come from retailers in Saskatchewan
and neighboring provinces but now
are being fielded from as far away as
Ontario and Vancouver Island, he said.

PRICES JUMP
The shortage isn't necessarily translating into higher used-vehicle profits. CBB estimates gross margins have

shrunk nine per cent, while Hargrave
said his used-car acquisition costs are
up 10 to 15 per cent, an increase he said
dealers are just eating for now.
"We've seen a spike in [wholesale] prices, contrary to what we were
expecting," Hargrave said. And he isn't
able to pass the cost onto customers
because of the precarious state of the
economy.
Kurtis Hicks, general manager of
Sherwood Ford in Sherwood Park
just outside Edmonton, said the stronger-than-expected demand and the plant
shutdowns, combined with Ford retooling its plants for the 2021 F-150, have
put full-size pickups in short supply.
"The COVID ripple effect has also
been terrible for parts supplies in our
shop, causing a lot of back-ordered
parts with no ETA. It's a bit of a disaster, but we are navigating it as well as
we can."
While most assembly plants in North
America resumed production by midMay, capacity also has been limited by
physical distancing and absenteeism.
Brian Murphy, vice-president, research
and analytics, at CBB, said respecting
COVID-19 restrictions means workers
stay home when they have symptoms.
"Until a vaccine is available and people have had it - assuming [the vaccine] works - we're going to continue
to see [inventory shortages]. I do think
it's temporary, but ... how long is temporary?"
Murray said the automotive industry had been bracing for a glut of used
vehicles, expecting that rental companies hit hard by the drastic drop in air

Kurtis Hicks, general manager of
Sherwood Ford in Sherwood Park
near Edmonton, is grappling with a
shortage of the F-150 pickup as well
as parts. P H O T O V I A K U R T I S H I C K S

travel would be dumping fleets into the
market to raise cash. That didn't happen.
Instead, the shortage has driven up
trade-in values, which is increasing
demand for new vehicles. "We're definitely seeing people getting out of their
vehicles early because the trade-in values are so strong," he said. "The only
challenge is we don't have a lot of selection to offer them on a new vehicle."
All these factors translated into a
rebound that few would have predicted,
Murray said.
"Our June and July was even better
than June and July of last year."

POPULAR MODELS
Shahin Alizadeh, CEO of Downtown
Automotive Group in Toronto, said
people are keeping their vehicles lon-

ger. He's hoping a strong autumn on
the new-car side will help change that.
"There aren't enough vehicles coming off of the old cycle," Alizadeh said.
His group's used inventory in August
was limited to what the company predicted it would sell, something he said
is unprecedented.
"There's usually a 50 per cent overage. It's a tight situation, and it's not
necessarily going to get better."
Automakers are noticing the
squeeze as well. Nissan Canada
President Steve Milette said some dealers have been unable to get certain
trim levels of hot sellers such as the
Rogue crossover.
The pandemic has also driven a
surge of first-time buyers anxious for
an alternative to mass transit, Milette
said. Sales of the new Sentra - which
was hampered first by the rail blockades in February and then by the pandemic in March - have benefited from
that fear.
"We saw this happen in China,
where a lot of people were buying their
first vehicle to stay away from public
transit, and we thought this would be
an opportunity that would crop up here
in Canada, and it did," Milette said.
"When I say some models are experiencing a shortage, Sentra is one of
them."
At Volkswagen Canada, the company is seeing strong sales in its certified pre-owned program, spokesman
Thomas Tetzlaff said.
"Our July was up four per cent over
last year. It was our best July ever."
- ANC

Reuss: During a pandemic, tile colour isn't exactly a priority
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tated appearance should be on
hold for the time being," Reuss
said.
"In this pandemic, it is
becoming very clear what really matters, [and] it's not the
colour of the tile being two
tones darker or lighter on the
Pantone scale. It's investing in
sales processes and service processes and the online ability to
transact."
Mike Stollery, founder of
the AutoIQ dealer group and
CADA chairman, said automakers should reassess the
requirements of their image
programs to ensure they are in
line with post-pandemic realities.
"You don't need to build
massive showrooms if half the
customers in the future want to
buy from home and have [a car]
delivered at home. It just needs
to be rethought."
He hopes automakers will
factor recovery time into their
image-program plans for the
coming months and years.
"Like every industry, we got a
lot of deferrals. Some dealers
got deferrals on the rent, and
some dealers with mortgages
got vacation on their mortgage.
All of the interest and all that
money is still owed back."
Image programs, which
often run into the millions of
dollars, have long been a sore
point between automakers
and dealers. But the pandem-

ic appears to have made these
requirements even more untenable for retailers.
CADA is advising dealer councils on
how to respond
to automakers
currently implementing image
programs, said
Reuss, adding
that brands
that are cutting McKeen:
products should Cadillac
Canada's
reflect those
decision to
changes in the
pay out the
expectations
full Pinnacle
placed on dealprogram
ers.
incentive
"If certain
helped
brands were
expanding their keep his
product lineups dealership
operating.
and that was
FILE PHOTO
the reason for
requiring expanded showroom
square footage, if those same
manufacturers are now reducing their product lineups, then
it only stands to reason that
they should also adjust their
requirements."
Some industry forecasts
suggest sales won't return to
pre-pandemic levels until 2024
at the earliest.

'SUBSTANTIAL' BURDEN
Carter Cadillac in Calgary
was the brand's first and largest standalone dealership
in Canada under its updated image architecture when
it opened in February 2019 at

a cost of $16 million. Dealer
Principal Jay McKeen said
navigating the COVID-19 shutdowns while carrying the
expense of new construction
has been "a disproportionate
challenge."
Because the store was ramping up its business through
the early months of last year,
McKeen said, government programs such as the wage subsidy were unavailable during the
pandemic's toughest months.
"We technically haven't
dropped 30 per cent on revenue," he said. "But as an example, if we've dropped 20 per cent
on revenue but our expenses have at the same time gone
up by 20 or 25 per cent ... the
impact on the bottom line is
substantial."
Where McKeen did find
assistance was in Cadillac
Canada's decision to pay out
the full Cadillac Pinnacle program incentive payment to all
dealers from March through
June, money that he said was
instrumental in keeping his
dealership afloat financially.
"That Pinnacle money,
when I look at all the components ... it would come awfully close to paying our mortgage
payments. It's that significant."
Despite wondering at times
whether the new dealership
would prove to be too large
for a post-COVID-19 world,
McKeen said business has
rebounded enough to see sufficient use.

ships successfully take advantage of programs that provide help with upgrades that
have improved the utilization
of space, look and comfort of
their showrooms and service
areas. We believe this enhances customer engagement and
their in-dealership experience, which leads to more positive brand affinity."
Flom said he is examining
NEW OR RENOVATE?
ways in which the space of
the new store can be modified
In Lethbridge, 200 kilowithout affecting design.
metres south of Calgary,
"One of the things we've
McFadden Honda was weeks
[considered] is expandability,
from breaking ground for a
so we've designed the buildnew $8-million, 30,000-squareing so that it can have
foot (2,800-square-meadditions and look
tre) dealership to
seamless. I can probareplace its 22-year-old
bly reduce it by a counew-car showroom and
ple of service stalls
separate used-car store
and reduce my parts
when the pandemic
department a little bit
shutdowns began, said
and reduce the size of
General Manager Greg
my showroom. ... We
Flom.
can make some changUnder its image pro- Flom:
Looking
for
es to square footage
gram, Honda Canada is
floor-plan
without changing the
now giving dealers the flexibility
design a lot."
option to either erect a for his new
Although his finannew building or comlocation.
cial situation remains
plete a renovation of
FILE PHOTO
stable, Flom said, even
an existing one by the
Honda's extended timelines
end of 2022. That amounts to a
might not ease the blow for
year-long extension over the
dealers who choose to renopre-pandemic plan.
vate under the brand's image
Honda Canada will work
program.
with dealers to "set a reason"Especially for smaller
able timeline" for upgrades,
stores, renovating seems to hit
according to spokesman John
them especially hard. A renBordignon.
ovation doesn't sell you any
"Over the past few years,
more cars." - ANC
we have had many dealer-

"We've seen a strengthening of the marketplace here in
Calgary. We may be in a position where we still feel like we
have too much space for the
next year ... [but] I've been on
the reverse when times have
been good here where you say,
'Gosh, I wish I'd built that facility bigger because we're bursting at the seams.' "

Automotive News Canada - September 2020

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