Automotive News Canada - July 2022 - 31

* JULY 2022
31
Dealers head south for climate change
More than the weather,
the United States provides
a brighter outlook
By DAVID KENNEDY
T ORONTO BUREAU CHIEF
SEVERAL CANADIAN DEALERSHIP
groups have recently reached across the
border to expand or build U.S. footprints as
part of what one industry
buy/sell expert
calls a trend driven by
" sun-seeking " and better
growth prospects.
Calgary-based
Foundation
Kerrigan: The
climate for
dealership
success is
better in the
United States
because of
population
growth, better
acquisition
prices and
better franchise
protections.
FILE PHOTO
Automotive has twice
added to its U.S. network
in 2022, firming
up two deals for six
rooftops in Texas. In
February, East Coastbased
Steele Auto
Group disclosed the
purchase of a pair of
dealerships, also in
Texas. In late June,
Dilawri Group of Cos.
said it was buying
two luxury stores in
Washington, D.C., its
first foray south.
And as 2021 drew
to a close, western
Canada's Knight
Automotive Group stepped into the United
States with the purchase of two California
dealerships.
Erin Kerrigan, managing director of
Nevada-based Kerrigan Advisors, said
the weather isn't the only factor luring
Canadian dealership groups south. Also
influencing the moves are population
growth, better acquisition prices
and greater stability.
" As the industry prepares for
a lot of change as related to electrification
and digital retailing, "
Kerrigan said, " there is more
risk to the retail model in Canada
than there is in the U.S., where
we have more robust franchise
protections embedded in our individual
state franchise laws. "
'PRETTY RICH' PRICES
Along with concerns about the
encroachment of the direct-to-consumer
sales model, Kerrigan said,
the " pretty rich " prices for dealerships
in Canada are among the
top reasons that Canadian groups
are broadening their horizons.
At the end of March, she said,
she was working on three major
deals involving Canadian dealership
groups headed to the United
States.
" With the understanding that
Day: Steele
Auto Group's
" highest growth
opportunity is
in the United
States, " hence
the purchase
of two Texas
Hyundai stores
this year and
further interest
in opportunities
in Florida and
New England.
FILE PHOTO
there is more protection in the investment,
it's highly appealing in the U.S. because
you have more opportunity to increase
return on investment in the U.S. than you
can in Canada, " Kerrigan said.
Following Steele Auto Group's purchase
of two Texas Hyundai stores, Steele
President Kim Day said the Dartmouth,
N.S.-based company is just getting started
in the United States.
" Our highest growth opportunity is in
the United States, " she told sibling publicaRealistic
expectations are key
to keeping customers satisfied
CONTINUED FROM PAGE 9
While some vehicles from
General Motors can arrive in 60
days, " we're theoretically sold
out for two or three years " of
premium automobiles
such as the Chevrolet
Corvette.
" Theoretically "
because some buyers
will find a vehicle elsewhere
and cancel their
order. Jack Carter provides
refunds on order
deposits because the
waiting list of would-be
buyers is long.
" We know we can sell
that car within minutes "
of making it available,
McKeen said.
THE REAL DEAL
ahead of time. "
At Cadillac Canada, Managing
Director Shane Peever said
dealers are relying heavily on
Cadillac Live, a digital showroom
that allows customers to
take video tours and ask
an agent questions in
real time.
The key with customers
is to set realistic
expectations, he said. In
the case of hard-to-get
vehicles, the dealership
will take the order, " but
we'll tell them it could
be two or three years "
before delivery, McKeen said.
One of the most challenging
customers is the person who tells
the dealership to call when it has
the vehicle that the customer is
looking for, he said.
" That point in time is not coming
anytime soon, " McKeen said.
" There are just so many people
who are willing to purchase
Peever: The
Cadillac
Live digital
showroom
was intended
to generate
leads, but
it is now
educating
consumers
who are
looking for
vehicles such
as the Lyriq
EV.
FILE PHOTO
While the digital platform
was launched in
2019 as a lead generator,
it has helped dealers
maintain their connection
with consumers,
educating them about
EVs, such as the upcoming
Lyriq utility vehicle,
Peever said.
Customers can engage
in a live interaction with
one-way video to see a
vehicle that is not physically
in a dealership, he
said. " [Agents] have car
seats and golf bags, so
they can show you the
dimensions of the vehicle
and take you on a virtual
tour, " Peever said.
More than 3,300 Lyriqs
had been preordered in
Canada by June 1, and the 2023
production run is sold out, he
said, adding that Cadillac is taking
orders for the 2024 models.
In rural Saskatchewan,
Jeff Siegfried, sales manager
at Watrous Mainline Motor
Products, a General Motors dealership,
said June 15 that he had
about 200 vehicles on back order.
Customers realize
that high-demand
electric vehicles
such as the Hyundai
Ioniq 5 are a year out,
said Steve Chipman
of Birchwood
Automotive Group.
PHOTO: HYUNDAI
tion Automotive News in February. " We're
very interested, of course, in growing our
presence in that Texas market. We're also
really interested in opportunities in Florida
[and] even closer to home ... in the
New England states. "
Some movement is also occurring
in the opposite direction.
Last August, for instance, U.S.based
Lithia Motors Inc. acquired
Pfaff Automotive Partners and its
more than a dozen Ontario dealerships.
Lithia
has added one rooftop
to Pfaff's portfolio this year,
announcing the purchase of
Sisley Honda in north Toronto
on May 3. Yet Kerrigan says this
sort of cross-border activity is the
exception, not the rule.
" I do not expect to see as significant
an increase in U.S. dealers
going north as we are seeing
Canadian dealers going south, "
she said.
'THIS IS HYPE'
Unlike Kerrigan, Samir
Akhavan, managing partner
at Toronto's Templeton Marsh
mergers and acquisitions, is not convinced
that the recent cross-border deals
represent anything outside the status quo.
" Frankly, " he told Automotive News
Canada, " I think this is hype. "
More often than not, Akhavan said,
recent U.S. purchases by Canadian dealership
groups have been a " continuation of
old activity. "
For the Foundation, Steele and Knight
dealership groups, this is partially the
case.
Despite being headquartered in
Calgary, 21 of Foundation's 23 locations
are south of the border. Steele entered the
United States in 2020 and backed up its
initial three-dealership purchase with the
recent Texas acquisition.
Knight's December expansion into
California, however, was the group's first
foray into the United States.
Outside of a handful of outliers,
Akhavan does not see cross-border purchases
as a " significant
piece of the retail
automotive puzzle. "
" If you want to do
a deal, wouldn't it be
easier for you to do
it with someone you
know or know of than
somebody you don't
know at all? "
Akhavan expects
further industry consolidation
as dealers
adapt - or head for
the exit - because
of challenges such as
electric vehicles and
the agency model,
which pays commission
to dealers for sellAkhavan:
Cross-border
dealership
dealing
is not
a trend but a
" continuation of
old activity. "
FILE PHOTO
ing vehicles instead of allowing them to
determine the margin.
" Things are changing, " he said. Dealers
" don't know how much, how quickly, but
a lot of these guys are starting to look for
dance partners, and they're saying, 'I don't
want to be the last guy on the dance floor
without a dance partner.' " - ANC
- With files from Melissa Burden
and Jack Walsworth
More than 3,300
Cadillac Lyriqs have
been preordered in
Canada, and the 2023
production run is
sold out.
PHOTO: CADILLAC
The customers have
become aware [that
certain models of] cars
aren't available. The
expectation of having an
immediate vehicle is gone.
STEVE CHIPMAN
Birchwood Automotive
Group
Most customers trust the dealership
in Watrous, about 175 kilometres
northwest of Regina, to
update them, he said.
DELIVERY HURDLES
Hurdles to delivery are numerous
and ever-changing, Siegfried
said.
" Something is produced, and
there it sits, " he said. It could
be because the vehicle was built
" shy " - missing components -
awaiting quality control or even
because there is a shortage of
rail cars to deliver it.
A growing number of customers
want to order a new vehicle
months before they need it, and
he typically puts the order in
right away.
" Customers are becoming
more understanding, " he said.
" [They become] frustrated if
they've lost a vehicle [through
accident or fire, for example]
and need to have one right
away. "
Siegfried tells those customers
the automakers are doing
everything they can to keep factories
running.
" It's not part of their business
model to make [them] mad, " he
said. - ANC
- With files from Petrina Gentile
Automotive News Canada - July 2022

Table of Contents for the Digital Edition of Automotive News Canada - July 2022
