Automotive News Canada - September 2021 - 27

* SEPTEMBER 2021
27
Lithia deal means Pfaff will look for 'further acquisitions'
CONTINUED FROM PAGE 1
Medford, Ore.-based Lithia boasts a
market capitalization of US $11.5 billion
(Cdn $14.36 billion) and operates
275 dealerships. It is the second-largest
group in the United States, according to
sibling publication Automotive News.
The partnership, said Pfaff, gives " us
the strength to do further acquisitions.
We're looking for more opportunities,
and we're looking for good people to be
part of that as well. "
Investments in future technology,
such as data capture, will be " huge ... so
I think that we're a lot stronger going
forward for growth. "
A KEY TO ENTER CANADA
Samir Akhavan, managing partner
at Toronto-based buy-sell company
Templeton Marsh, said the deal positions
both companies for expansion in
this country.
" Now that Pfaff is part of Lithia,
it's probably easier for Lithia to look
at other dealer groups. Pfaff has much
closer relationships with most of those
dealer groups and is able to more quickly
assess an opportunity and say, 'Let's
get after it.' "
Akhavan said he also expects the
Lithia purchase to be an " aha moment,
a catalyst " for other dealership groups
looking either to expand or sell their
businesses.
" The Pfaff-Lithia deal has
got a lot more people thinking
seriously about what they want
to do down the road. They're
thinking, 'We have had record
years, it's the top of the market.
Do I want to work another 10
years or get out now?' "
Akhavan estimates there
are about 10 or more dealership
groups in Canada with 20
or more stores, and he expects
those groups to grow, primarily
by acquiring existing dealerships.
Smaller, regional groups
might also seek to stretch outside
their current footprint
by purchasing dealerships in
neighbouring provinces.
SIX-YEAR COURTSHIP
Pfaff said Lithia CEO Bryan
DeBoer first kicked the tires about six
years ago, but talks got serious last
September. Pfaff would not disclose the
purchase price or the size of the stake
Lithia assumes. He did say that Pfaff
owns a minority stake.
Akhavan:
The
Pfaff-Lithia
deal will
make other
dealership
groups
consider
expanding -
or selling.
FILE PHOTO
Aside from growth and increased
efficiency due to adopting some Lithia
management practices, there will be
few visible changes, said Pfaff.
" Even the branding of Pfaff
remains the same. I'm still running
the platform, what we
have and what we had before
in Canada... the management
is still the same, " he said. " I
would say we've got some very
sophisticated support back in
Medford, Ore., in terms of what
they do with technology and
management reporting. "
Not included in the sale
were Mercedes-Benz KitchenerWaterloo
and Pfaff HarleyDavidson.
Pfaff would not say
why.
" They may go into [the deal]
at some point, who knows? But I
really can't comment on that. "
Officials for Mercedes-Benz Canada
said in a statement it does " not comment
on dealer network transactions. "
Also not included in the deal is Pfaff
Motorsports, which has been racking
up podium finishes at the International
Motor Sports Association with its distinctive
plaid Porsche GT3 R as well
as competing in Vintage Auto Racing
Luxury not immune to chip crisis
CONTINUED FROM PAGE 3
Birchwood's Chipman agrees.
" I've talked to our vice-president of luxury
sales and a couple general managers, and that's
the sense they get. "
The story is similar at Pfaff
Automotive Partners, said Chris Pfaff,
head of the Toronto-based group. It has
16 dealerships across Canada, including
two ultraluxury stores. Pfaff did not provide sales
numbers.
The third factor - the microchip shortage -
is no stranger, but its impact on luxury sales provides
a new twist.
While mass-market brands such as those
from the Detroit Three have taken the brunt
of the global
microchip crisis
through
lost production,
automakers
have been
redirecting
microchips to
high-margin
vehicles, said
Sam Fiorani,
vice-president
of global vehicle forecasting at U.S.-based
AutoForecast Solutions.
" These are smart companies and they are trying
to focus on the vehicles that make them the
most money. But, when the chips dry up, they
dry up. "
Luxury brands are not immune to the shortage.
" I can tell you even some of that [demand] is
being held back because we don't have enough
product, " Pfaff said. " Despite all the challenges,
that business is extremely strong. "
His dealerships are " selling everything we
can. I don't know if it's a panicked consumer
hearing that you can't get a car, so you better get
one now. It's really bizarre. "
At the mass-market level, Subaru was the
only brand that still reports monthly to post sales
gains in August, up 11 per cent to 5,853 units.
While there doesn't appear to be an industrywide
consensus on how long it will take for the
microchip shortage to bottom out, automaker
output was cut further in September. Globally,
8.25 million cars and trucks had been taken out
of schedules as of Sept. 14 - an increase of about
1.17 million vehicles from two weeks earlier,
according to AFS.
SALES ANALYSIS
MONTHLY STATS/P26
Toyota on Sept. 10 announced plans to slash
global production by 330,000 units in October.
The total hit represents a 40 per cent cutback
from its original October production
plan. It also said it will take a bigger hit
than expected in September, expecting
to lose another 70,000 vehicles.
Chipman said his stores will likely
notice the cuts starting in November. Meanwhile,
he said on Sept. 9 that his group was down to onethird
of normal inventory.
" We could get down to 20 per cent of our normal
levels. "
Some of his stores are now missing monthly
sales targets because there simply isn't product.
- ANC
MICROCHIP ROUNDUP
CONTINUED FROM PAGE 3
Chipman: Expects his stores
will notice production cuts
because of the microchip
shortage in November. FILE
PHOTO
were not able to produce about 2.6 million vehicles
that they otherwise would have, including
1.7 million in the United States and 576,000 in
Mexico. Fiorani said chip shortfalls are likely
to continue through the end of the year.
WINDSOR LEADS WAY
STELLANTIS' WINDSOR, ONT., ASSEMBLY
plant has had more units taken out of production
than any other Canadian plant, with about
91,200 vehicles impacted, or about 49 per cent of
its 2020 production total. The factory builds the
Chrysler Pacifica and Voyager minivans.
Meanwhile, General Motors' Ingersoll,
Ont., factory, which assembles the Chevrolet
Equinox crossover, has seen about 81,000 units
moved out of production, accounting for about
half of the plant's total production in 2020 and
about 45 per cent of its 2019 total.
With Toyota's Canadian operations getting
hit, Honda has become the automaker least
impacted by the microchip crisis in Canada,
with a combined 14,600 units removed from
production at its Alliston, Ont., assembly
plants. The company builds the Honda Civic
sedan and Honda CR-V crossover at those factories.
- ANC
- With files from Lindsay Chappell
Association of Canada (VARAC) with
its H.J. Pfaff Audi historic race team.
ONLINE OPPORTUNITY
Pfaff said he's excited about the prospects
for Lithia's Driveway sales platform,
saying that Canadian consumers
" are not really taking the full journey
online in terms of purchasing a car,
but they are certainly taking part of the
steps towards it.
" But I do think as time moves on, it's
going to become more and more where
people will be comfortable with that. "
Pfaff Automotive began in 1964
when Hans J. Pfaff was awarded a
Volkswagen franchise, which opened
in Newmarket, Ont. Today, the company's
brands include Porsche, Pagani,
McLaren, Mercedes-Benz, Audi, Subaru
and BMW.
The company's position in the luxury
and ultraluxury market is one facet
of the deal that makes the partnership
with Lithia strong, Pfaff said.
" I would say that the mainline
domestic and Japanese business, they
know for sure better than I do, where
maybe in the higher end, exotic and
luxury, we've got a lot of experience
there. So I think there's a really great
complement there. " - ANC
AutoCanada isn't the
only group eyeing used
CONTINUED FROM PAGE 3
" This store in Guelph, if
they market it correctly and
have the right process in
place, their market is not limited
to southwest Ontario, "
Richardson said. " Their market
is Canada. Their trade
area grows exponentially if
you have the right digital
sales process and the ability
to sell vehicles online. "
As AutoCanada slowly
builds out its network of
used-vehicle dealerships, its
new-vehicle stores have begun
to sell more used cars, which
have historically provided
higher margins than new
ones. According to its website,
AutoCanada has 49 franchised
dealerships in Canada and
17 franchises in the United
States. The company sold
11,474 used vehicles in Canada
in the second quarter of 2021,
compared with 8,338 new vehicles.
For comparison's sake,
in the second quarter of 2020,
AutoCanada sold about 300
more new vehicles than used.
'POTENTIAL' IN USED VEHICLES
Chris Murray, an analyst
at ATB Capital Markets Inc.
who monitors AutoCanada,
said he was " cautiously optimistic "
about the retailer's
used-vehicle strategy.
" It's still early days, "
Murray said. " We're talking
about two dealerships, both in
Ontario but both very well-regarded
dealerships. It's really
about the potential of what it's
going to do. "
Other dealership groups
in Canada are also eyeing
used vehicles as a pathway to
growth. Steele Auto Group,
In August, AutoCanada
bought Mark Wilson's Better
Used Cars in Guelph, Ont.
The move came several
months after AutoCanada
bought its first used-only
store, Haldimand Motors in
Cayuga, Ont., near Hamilton.
PHOTO: MARK WILSON'S BETTER
USED CARS WEBSITE
Atlantic Canada's largest
retailer, in July purchased
All EV Canada, a used-vehicle
store that specializes in electric
vehicles.
Smaller groups, too, see
used vehicles as a key to success
moving forward. Michael
Carmichael, owner of threestore,
Stratford, Ont.-based
UpAuto, said he plans to open
used-only stores. Those plans,
however, have been put on
hold because of the current
shortage of used vehicles.
" If I can't adequately supply
my own lots, I don't want
to add more distribution
points just to thin it out, "
Carmichael said.
Still, he said, the moves
AutoCanada and other large
retailers are making into used
vehicles are " very encouraging "
as he mulls over his longterm
strategy.
" I love seeing it, "
Carmichael said. " To a
degree, it confirms some of
the stuff I'm working through
at 3 in the morning. ... We're
excited about opening more
used-car stores. " - ANC
Automotive News Canada - September 2021

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