There’s a lot of change in the air and dealers are thinking their way through it

As we sit here in the first quarter of 2023, having lived through two tough years of uncertainty, what can we expect in the coming year? 

This is not an easy question to answer since our macro business environment in general, and the automotive retail environment, of particular interest to us, are on shaky ground.

Geopolitical instability is the macro headline. Russia and Ukraine do not seem close to resolving their significant differences. The fallout from their actions is being felt right around the world.

Add to that the rumblings of China invading Taiwan along with North Korea’s long-range missiles and nuclear programs and challenges to NATO and you get a volatile environment which could erupt at any time. Here in North America, after years of pursuing globalization, focus seems to have returned to domestic production.

On the Canadian front, higher interest rates will be here longer than expected as central banks attempt to tackle inflation. Price inflation is being felt across all sectors of the economy.

This is putting pressure on our business expenses and cost of capital expenditures.  More importantly, it affects vehicle affordability as consumers contend with across-the-board higher costs. On the other end of the inflation spectrum, wage inflation is putting pressure on employer P&L’s and thus adding fuel to inflation. Higher wages mean higher prices, higher prices increase inflation. It’s a vicious circle.

Macro issues aside, we are beginning to work our way out of the pandemic from a day-to-day health restrictions standpoint. Although COVID-19 is still circulating, there is a laissez faire attitude that has developed among Canadians.

In most industries, absentee employees are more common today than before and dealerships are no exception forcing businesses to make staffing modifications daily.

My discussions with dealers these days centres around decision-making. To say there is anxiety and confusion about the future would be accurate. The cerebral challenge is both short-term versus long-term. There is pressure to preserve or increase today’s market share balanced with long-term investment and commitment. As a group, in my opinion, dealers are more concerned about determining the long-term and less so about managing through the short-term.

Dealers are being asked to make capital investments on many fronts to prepare for the proposed changes impacting vehicle fleets and brand specific competition.

New and used internal combustion engine powered vehicles will still be in our showrooms and on our roads for a long time. This will provide us with ongoing variable and fixed operations revenues for years to come.Simultaneously, alongside our ICE vehicles will be electrified vehicles.

A whole new model line-up with all the configurations will eventually create consumer demand and many new business opportunities. This creates a whole new customer electrification enlightenment strategy in our stores.

Dealers will need to lead retail customers through a new journey, taking more time with them and assisting them with understanding and demystifying electrification misinformation.

On the back end of our business, our technicians will be retrained as we ask them to work with heightened electrical health and safety elements. In many cases, our current facilities will need modification to meet heightened vehicle and electrical requirements.

On the surface, the future is an exciting one with many new possibilities and opportunities as consumers and dealers embrace the new world of electrification while continuing to live in harmony with ICE vehicles. It should attract new people to our staffing ranks where working with modern vehicles in dealerships will be seen as a great career opportunity.

Many of the concerns expressed to me deal with transition and future roles. This is because the transition is not clear. This is where brands differences become reality. As I wrote in Driving the road ahead, a view into the future of Canadian automobile retailing a few years back, all brands will not go forward in the same direction at the same time and some brands might not change at all.

Product will soon flow to our lots allowing us to deliver on our customer order banks and possibly build a small inventory of new vehicles on hand by the end of 2023. The inventory availability for most brands should soon be at reasonable levels.

Many dealers had robust 2021 and 2022 financial results. In addition to expense control and rationalization, short supply helped keep margins high and as importantly began to train the customer to order vehicles.

Customers were eager to make appointments with sales personnel and reserve a vehicle for future delivery. Hopefully, delivery times will be shorter in the future. Dealers, however, cannot lose sight of the efficiency this process produced.

Of concern to dealers is the fact that some brands want a bigger part of the retail side of the business. The important role of the dealer cannot be minimized in most customer journeys. Sure, we all shop online at one time or another.

The pandemic introduced many people to alternative shopping possibilities. When stores were closed to instore shopping there was little alternative. Online was the only option.

Looking ahead, online will certainly remain as a tool for research and for some it will be their only source of retail transactions. The vast majority, however, will use more than one channel, both online and offline depending on what they are looking to buy and where they are. For vehicles many consumers opt for an online / offline approach. It’s part of omnichannel retailing.

To date both dealers and their brands independently engage in some degree of online retailing. Some brands are looking to play a bigger role in the customer journey than they have in the past. This is made possible by rapid advances in fintech and data management capabilities.

But as we know, auto retail is not simple, and vehicles are expensive. Consumers do not want to make mistakes and many consumers look for assistance from local dealerships to help them make the right decision.

It’s not the same situation as shipping back your online orders if you are not happy with what was delivered to you. So, each individual consumer will decide at the end of the day what percentage of online/offline works for them.

This leads me to believe that a closer partnership between brand owners and their dealers is the right way to go. However, there is no one size fits all solution.

It will require a paradigm shift for some brands and dealer networks. Nonetheless, dealers and brands are both after the same result, a solid return on investment, repeat customers and enterprise value creation. Working together does not mean one side gets the upper hand over the other.

Working together means that dealers and brands are both successful, jointly meeting customer needs and wants along a flexible journey.

So where do we go from here? Don’t sweat the macro issues, they are out of your control.

As our businesses begin to return to a new normal, in the short-term we cannot lose sight of the positive shifts in our dealership operations discovered during the pandemic.  Don’t go back to the old ways but embrace new realities.

As for the longer-term, remain part of the conversation and develop a closer relationship with your brand. Understand where they are headed. At the end of the day, you are both on the same team, seeking the same outcomes.

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I can’t help but look at our current business situation and describe it with a sports metaphor. 

At the time of writing, it’s Super Bowl weekend in a few days, the NHL all-star game has just finished and the NBA all-star game is not far off, I am filled with sports analogies. Using football lingo, auto retail is stuck in the backfield and is up against an all-out blitz. We are not ready to go down on one knee just yet, but we are scrambling like hell to stay standing.

The blitz is made up of inflation, high interest rates, consumer debt payments, lower consumer disposable income, intermittent vehicle and parts supply disruptions and new retail business models, to name a few. 

It’s coming at us from every direction. All we can do is be like a pinball in a pinball machine, and bounce off whatever gets in our way and keep running. The problem is, we are running from side to side, not down the field where we are supposed to be headed. In other words, we don’t seem to be making any yardage.

Sure, for the most part, profits are higher than ever, but we all know that is not sustainable. How long will it be before sins of the past rear their ugly heads and exert downward pressure on our profitability? 

Granted, the pandemic exposed many sins from the past, and gave us time to come up with many new game plans. We are leaner and meaner from an operations standpoint, and with any luck we will stay that way. There are headwinds, however, that we need to pay attention to. 

Our people are our most valuable assets. With the cost pressures they face in their daily lives, I expect wage pressure to interfere with our progress downfield. We need to retain our good people and we need to train new hires in the way we want things handled in our stores. Our managers and staff need to be engaged for us to take full advantage of our business model, which, at the end of the day, is measured by repeat business and employee retention.

I also anticipate we will be subjected to more and more inventory as factories come back online and product produced must be moved. Our deeply ingrained tendency is to fill our lots full to overflowing, then lease additional vehicle storage space, only to watch our days in inventory and along with it, inventory carrying costs, soar. 

We will be tempted to over-pay for used vehicle trades to move that inventory, quickly abandoning the discipline we temporarily developed during the pandemic. Many of the gains we made were on the backs of low inventory levels and high consumer demand. Those days, I fear, are over.

So how do we get out of the auto retail backfield?

The vehicles that we will stock will be technological masterpieces. No longer just transportation, we will be delivering experiences, at the time of sale and throughout the lifetime of vehicle ownership. 

Our customers will depend on us more and more, since the vehicles we sell them are complicated and will need regular attention. Many of our vehicle issues will not be mechanical, but rather electronic, and as such we will be competing with our brands for the revenue that over-the-air updates will provide. Some will be covered under warranty, but others will not. We must be prepared for this.

We will need to continue to embrace being ambassadors for electrified vehicles. Not only will we be asked to stock unproven models, but we will also be doing this in an environment of limited charging capacity. 

We will need to train the customer on how to take care of these vehicles. Government mandates will drive the industry and the consumer towards electrified vehicles. That means that the staff we train must be fully engaged to pass on the knowledge that our customers will need to be fully satisfied. Much of this will be done on our nickel as dealers. Do this we must, to have the opportunity to earn their loyalty and trust. 

We must continue to have a keen eye on used vehicles, parts, and service. New vehicles come in at the top of the customer funnel, however, it’s these adjacent and complementary businesses that provide the profit margins we need to thrive. I strongly suspect that we will be developing and introducing new adjacent businesses in the coming years, based largely on electrified vehicles, but also on aging ICE vehicles.

I can see a time where dealerships have mobile charging services, much like today’s customer shuttles to complement their charge-at-home installation services. Electrified vehicles will be able to act as power generators for non-vehicle applications. 

This will create a whole new revenue opportunity for dealer services. Also, as ICE vehicles age over the coming decade, ownership patterns will change and new services to support older ICE vehicle models will emerge. Body shop and vehicle reconditioning services will become demanded by vehicle owners and not just at time of purchase but to extend their ownership cycle. 

At the other end of the spectrum, many dealers are calling it a day. After tremendously successful careers, lack of ownership succession and a ready supply of acquirers exists who are ready and willing to pay fair price for stores and related real estate. Where some dealers see headwinds, other dealers see nothing but opportunities. Dealers, by and large, are great entrepreneurs and optimists, but some do run out of steam, and still others become ready to move onto other challenges and opportunities in a second career. 

Getting out of the backfield is a challenge for all of us, and is not easy in an environment where you do not completely control your outcome. We all put our own spin on how to do that. There is no one right way. 

Rather, I suggest there are many successful ways; depending on personalities, experiences, insights, and expectations. One thing is for sure, however. This is, and will continue to be, an exciting, fascinating, and rewarding industry for those that continue and choose to embrace it.

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Uncertain OEM marketing trends, coupled with the economic forecast, have many dealers feeling uneasy about the future

Each fall, as the summer winds down; sunlight hours get shorter and shorter, kids head back to school, and everyone seems to get back to business.  

At this time of year, dealers also look to their brands for guidance on what the next 12 to 24 months could bring from both a product, and go-to-market strategy perspectives. 

OEM brand intro shows, dealer association meetings and industry conferences are rolled out and tons of information is usually exchanged, with both informed, and biased, opinions expressed.  The end of summer means the start of a new year, much more so than New Year’s Day.  

This fall, however, is not your typical fall. The fall of 2022 is seeing the return to many face-to-face events as industry observers yearn for vibrant networking opportunities. 

With concern for COVID seemingly falling by the wayside (even though it is still circulating broadly), economic concerns have stepped in to occupy our thought processes. 

For the past 30 months the Canadian government has propped up many Canadian household and Canadian businesses, but those days are now over. What is left in the aftermath, is a country deeply embedded in nasty inflation, divided in its philosophies, searching for a way out of our current economic situation before the next slate of federal and provincial elections is upon us.  One problem is that inflation is not just a Canadian problem, it’s a global problem. Domestic solutions, without global alignment, will not be very effective.

This time around, inflation has a different feel. It’s not solely wage driven and not solely driven by profit taking. I believe the biggest cause for inflation is simply general supply issues. Supply disruption has caused massive shifts in product pricing at both wholesale and retail levels. Specifically for automotive, add vehicle electrification, higher interest rates and inconsistent new vehicle and replacement parts supply to the mix. Reduced new vehicle sales levels of the past 30 months also creates a trickle-down effect upon adjacent dealership business such as used vehicles, parts, vehicle maintenance and repair and F&I to be felt over the next few years. 

There is a delayed impact on adjacent businesses.These businesses will not fully recover until sometime after new vehicle sales levels as a whole return to pre-pandemic norms and units in operation increase.

I believe this inflation monster will only be fully tamed once the supply side of the economy in general has been healed. Until then, inconsistency and unpredictability will continue.

The Bank of Canada has adopted a policy of increasing interest rates with the goal of taming inflation. It’s really the only bullet in their gun. Designed more to protect the value of the Canadian dollar, increasing interest rates increase the cost of living for consumers. It also adds to the cost of doing business, and in a circular way, adds to higher prices. Also from a household standpoint, higher interest costs add to higher wage demands and again higher prices. 

From a vehicle dealership and consumer perspective, higher interest rates translate into more expensive vehicle prices, assuming increased costs are passed on in the form of consumer price increases. 

Since most vehicles are financed by loan or lease, higher interest rates will cause the consumer to re-evaluate their overall cost of spending on transportation. This could keep vehicle sales levels suppressed in the short-term and might also alter the mix of new and used vehicle sales. 

When interest was not a factor, the consumer stretched for the most expensive vehicle they could afford. Roll forward to a higher interest rate environment, and consumers might very well only be able to afford lesser equipped vehicles, and might be forced to downsize. This is not dissimilar to the current housing market, where many homeowners are also stretched, now only to be challenged by higher monthly mortgage costs.

Trying to figure out all the combinations and permutations has many dealers quickly moving up the anxiety curve.

We are also entering an era of increasing OEM involvement in the retail side of the business, led by better access to consumers through increased online focus and capability. 

At the same time, there is a very real shift away from ICE vehicles towards electric vehicles. Although this transition will be slow, while many climate conscious consumers have a propensity to buy electric, electric vehicle ownership is still very expensive, causing many to wait a few years until prices come down and charging infrastructure is better built out. 

In the meantime, dealers can position themselves as trusted advisors to their customers by proactively educating their customers of the differences between ICE and EV.

OEMs are, or will be, demanding increased investment in facilities infrastructure without a solid business case for that initial investment. It’s a chicken and egg situation. Do dealers invest now and wait for sales to come, or do they wait for the sales to come before they invest?  Many dealers are looking to cash in. However, with the stock markets, real estate values and other investment options in utter turmoil, other dealers are deciding to stick to the devil they know.

After a decade of increasing dealership profits, highlighted by exceptional performance during the pandemic, currently most dealers are not feeling certain and comfortable about their future. 

Most, if not all of the elements affecting dealers are out of dealers’ control. It’s enough dealing with the economic aftermath of the pandemic, let alone all the uncertain changes in how new vehicles will be retailed and customers engaged.  

Disruption to the status quo seems likely for most brands as OEMs redesign their go-to-market strategies. Dealers from coast to coast are beginning to feel the pressure and have that uneasy feeling in their stomachs. The heightened anxiety comes from having to make significant decisions in a perceived short period of time. 

Depending on your brand and where your stores are located, these decisions might be required sooner than later. All this uncertainty is making many dealers feel uneasy, causing many to sleep with one eye open, guaranteeing they do not wake up rested. Heightened anxiety will do that to dealers until they understand and decide on a clear path forward. 

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I recently have had many discussions surrounding the fact that there seem to be more jobs than workers to fill them. Virtually every dealer I speak with is looking for people and can’t find them. Many years ago, there was a book called Boom, Bust and Echo, written by David Foot and Daniel Stoffman, that described the conclusions that can be drawn and predictions that could be made based on the study of human populations. It focused on baby boomers and their historical and possible future impact on Canadian society.  

As we all currently observe the workforce shortages plaguing Canada and the USA, one cannot help but wonder why this has happened.  Coined by Anthony Klotz, a management professor at Texas A&M University’s School of Business, the “Great Resignation” is a phenomenon made popular by Covid 19 where a higher-than-normal number of employees voluntarily left their jobs. Many believe this has created the labour shortages we are currently experiencing. One must ask the question though, how are these people managing to live without an income?

Another phenomenon is called the “Great Realignment”, where employees, looking for greater job security, are willing to retrain for what they perceive as better jobs. The reality is that the pandemic left several segments of workers without work, and for other segments, highlighted the vulnerable nature of their employment. This created a situation where employees, in many industries, reassessed their work options with the hopes of improving their wages, job security and their lives.

Businesses, on the other hand, furloughed a large percentage of the workforce, as business quickly dried up.  Businesses of all shapes and sizes turned to digital solutions, causing many employees to see the writing on the wall. Businesses also were able to operate with fewer employees successfully and profitably, taking advantage of business efficiencies that came to light during the pandemic-led downturn. Many employers asked themselves “Why did we need all these employees?  What did they do?” The retail, service and manufacturing industries were hard hit as a result.  Many furloughed employees took the opportunity to reassess their future and many still today have not returned to their former jobs.

Back to baby boomers.  During the pandemic, many chose to retire from their former employment.  This is permanent, and has created a need for replacement employees. Part of the problem is that the size of the baby boom generation is so large that the Gen X (and to some extent Gen Y) cohorts are simply not large or experienced enough to fill all the job openings. This creates a waterfall effect when older employees retire, they are replaced by younger workers.  The younger workers move up the ranks leaving behind their old jobs.  This partially explains why there are more jobs than workers to fill them.   

The “Realignment” is taking place as employers have realigned their businesses, many of them taking advantage of digital opportunities.  Many employees, on the other hand, are retraining to improve their skills with the goal of realigning with better job security and prospects. In a lot of cases, employers are providing the training to attract employees.  

Another phenomenon is called the “Great Realignment”, where employees, looking for greater job security, are willing to retrain for what they perceive as better jobs.

Wages inflation has just started.  As employees experience higher prices for virtually everything they purchase, wage increase demands are increasing. Many businesses have been recording record profits causing employees to seek higher pay increases. This is the next step in our current inflationary environment.  As central banks increase interest rates to curb demand and ultimately inflation, this adds to the pressure employees are feeling. We are now headed for a wage rate realignment. 

Auto dealerships were designated as essential in the early days of the pandemic. Many dealerships furloughed employees and quickly adopted a more digital approach to their businesses.  With the subsequent supply chain disruptions, many dealerships have also permanently reduced their head count since the business has changed and the need for certain classifications of employees shifted. 

We all know that automotive retail is under pressure to keep up with consumer demands, OEM expectations and government environmental regulation. The dependence on digital retailing solutions and the evolution to electrification have dealers caught in a spin-cycle of change.  Looking into the future, dealerships will have fewer employees. Many of those employees may very well work remotely and be providing services that have not yet been thought of. The emphasis on physical space will change as OEM business practices and terms of trade change closer align with general use of digital capabilities by consumers. 

Consumers will dictate what retail practices they will support. Businesses will need to alter how they do business based on how the customer wants to transact. In many ways this has been slowly happening naturally for about 10 years, but the pace escalated during the pandemic and is now somewhat out of control. The fact that digital capabilities excite the OEMs is one thing, but the fact that digital capabilities excite the consumer is quite another.  The latter point will create pressure at the retailer level for years to come.

I believe we have entered a time where employee productivity is under a microscope. Sure, we always calculated employee productivity and believed we had our eye on the ball, but the pandemic showed us that those former metrics also helped hide employment and process inefficiencies.  We are entering a time where we need to do more with less.  The current economic environment is challenging for us as businesses, but the real impact is being felt by our employees and customers. With a declining labour force availability, we need to be creative.  

Our current situation was quite predictable given the fact that today’s situation was seven decades in the making. The pandemic served to escalate the employment situation but did not create it. 

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With the end of the year rapidly approaching, it’s time to take stock of what was accomplished and look through the windshield to where we could be headed. This year has been unremarkable in many ways, with many of us anxious to put 2021 in the rear-view mirror. In other ways, it was a strong year for getting things done, clearing the decks, and reorganizing.

Automotive retail has always had shifting tides, to one degree or another, but none as shifty as this past year across so many fronts. The entire global industry value chain has been tampered with, link by link. Nothing was sacred and everything was on the table.

Look for more of this in the years to come, as all the pieces that make up our wonderful industry get shuffled around, replaced, or reinvented.

Our little domestic market here in Canada normally shows more signs of local decisions than global ones. During 2021, decision-making from beyond our borders increased in scope and reach. Canada is rapidly becoming a test bed for new initiatives not unlike Australia, Norway, and other relatively small markets.

Experiments will continue to run and results analyzed and shared with global decisions being made from far off lands.

Don’t get me wrong, it’s not doom and gloom. This could very well be the new path to Canadian prosperity and meaningful global contribution. Never has observing and being connected to the global industry been so important as it is today.

It’s our opportunity to gain view through various windows to see what could be coming in our direction. It gives us the time to prepare, analyze, and understand. It also gives us the opportunity to show our metal and offer leadership to the rest of the world.

The 2020-2021 year will be forever remembered as the COVID year where health and safety concerns dominated, as did government control over the population at large while businesses of all shapes and sizes had to take a back seat and adopt strict protocols to protect employees and customers. This meant that many businesses had to shut down, take a break, and take baby steps to reopen without sufficient cash flows from customers to guarantee survival.

Many did not make it.

On the positive side, it also reinforced that the automotive industry in its entirety is essential and needs to remain strong and open, even in desperate times.

This year will also be known for the chip shortage and other supply chain disruptions that collapsed new vehicle inventories on dealer lots and dampened sales. In addition, 2021 saw the beginning of the crystallization of electric vehicles, as new brands and models seriously moved from concept to reality.

Looking ahead to 2022, there is much on the horizon to keep our eyes on. For the first time in more than a decade, inflation will be back with a vengeance.

We are already seeing signs that everything is becoming more expensive, even as the world reopens, and many aspects of life return to a new normal. Inflation is being caused by fundamental changes in the global and domestic economy, but also by opportunity.

This year, we saw the rapid increase of some key items like lumber, but we also saw decreases in certain items like gasoline, as demand dwindled with most everyone staying home. Now all prices seem to be on an upward trajectory. This means that we will see interest rate hikes in the short-term, as central banks use their monetary policy to keep the rate of inflation in check.

For dealers, this spells higher interest costs on all floating debt for the foreseeable future, and the end to extremely low-cost financing.

There also is a fundamental shift in how employees work.

Many companies are adopting a whole range of workforce options, many of which will reduce commuting and business travel. As a result of spending so much time at home, employees have evolved and amended some of their core values.

For example, working parents of preschool aged children stayed home for many months. Many two-income families now realize the true costs of working outside the home and are deciding to choose different alternatives, at least in the short-term.

February 1st 2020: Electric Rivian truck on display in Austin, Texas.

Another example are the road warriors—those employees that left home on Sunday evening not to return until Friday, week-in and week-out. Many have learnt from the virtual meetings of the past 20 months and are not too keen to return to their previous travel pace.

Currently, business travel bookings are roughly half of what they were in 2019. However, leisure travel bookings are running ahead of 2019 levels. It’s early days, but one could conclude that it’s not the travel itself, but the reason for travel and use of productive alternatives that has shifted.

Next year, 2022, will see the continued barrage of electrified vehicles as our industry begins to escalate its charge to compliance with short-term and medium-term self-imposed and government mandated targets.

The year 2025 is only three years away. New entrants, like Rivian and Lucid for example, are starting Canadian operations with many more new entrants on their way. Tesla is entering its next phase in Canada by opening standalone facilities. Add the new entrants to already announced electrification efforts of traditional automakers, and this relatively small market segment quickly becomes overcrowded.

Another thing—2022 will also see the rapid development of vehicle charging infrastructure for the likes of Autochargers, EVduty, Sparkev, Electrify Canada, Grizzle-E, ChargePoint, and many others on the road to making every garage, parking lot, truck stop, and gas station in Canada a charging location.

Concerns about the capability and capacity of our electrical grid aside, 2022 will see an explosive increase in vehicle charging infrastructure.

Global turf wars will continue to play havoc with our supply chain in 2022, led by the superpowers of China and the United States, and affecting most countries—Canada included.

This is leading to a reversal of globalization initiatives of the past 30 years, as countries began the long journey to develop and support domestic production of critical goods and services. As the political landscape shifts globally, it’s anyone’s guess where this will end up.

I also want to mention the escalating role of digitalization in the automotive industry and the rise in importance of capture, maintenance, protection, and use of data.

The new vehicles being built today all have some degree of increasing connectivity—be it in our service bay plug-ins or over-the-air updates. Vehicles have the potential to produce so much data that managing it all is quite overwhelming. Coupled with the rapidly increasing trend in digital retailing, this is a foundation for automotive companies to reinvent themselves from top to bottom.

Many believe this could be their opportunity to develop into technology companies from their traditional position as manufacturing companies, and thus be viewed differently by financial markets.

Tesla, for example, is a technology company that happens to produce vehicles. Its valuation is in a stratosphere that automotive companies can only dream of. In fact, some companies that are yet to produce a production version of their new vehicles have a value greater than some household name OEMs that have been around for years.

Most traditional vehicle companies want to get a piece of the increased shareholder value perceived to be there for the taking, but the transition is encountering numerous potholes and bumps along the way. They will get this right, in one form or another, but in the meantime, the experiments will continue.

In the meantime, we must all keep a watchful eye on global developments to analyze how the moving of parts and pieces might affect us all.

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What pandemic-learned experience tells us about our customers and future business.

The past 18 months have been a true learning experience. As the world pivoted towards digital transformation, auto retailing had no option but to follow.

Up until then, traditional auto retailing, as we all know, had been largely bricks- and mortar-based, with a little digital thrown in here and there for good measure.

Not only did auto retail need to pivot on a dime, but so did regulators, financial institutions, and insurance providers, to name a few.

Still today, rules and regulations vary from province to province, and unfortunately there is no uniform set of rules across the country.

In most areas of Canada, consumers have shown they are ready and eager to adapt to new ways of transacting. For virtually every retail experience that consumers want, today there is an online option that exists.

The improvement of FinTech capability is driving a lot of this change. The banking industry, and even government organizations like the CRA for example, are moving to and pushing for more and more online adoption.

As our business becomes more digital, and in many ways more complicated, occurring simultaneously and somewhat as an afterthought is a facilities revolution.

Consumers at every turn are being asked to transact online. This creates not only an opportunity to do things differently—it also somewhat unexpectedly creates a monster called cyber fraud.

Online transactions or even basic information flows are becoming more cumbersome, as cyber security features like double password sign-on and text-based access code protocols and other cyber safety initiatives become the norm. These personal security steps are adding time and frustration to normal online activities in the name of protecting our personal and business identities and assets.

As our business becomes more digital, and in many ways more complicated, occurring simultaneously and somewhat as an afterthought is a facilities revolution. Brand facility and image programs have always been a sore point in the relationship between dealers and their brand.

Brands went through a period, and some still are, where their facility image was their key competitive advantage in the marketplace. This led to a situation where over the past 15 to 20 years, dealers spent millions of dollars to comply with brand demands.

Naturally some dealers overbuilt, wanting to be the biggest in their brand within their city or town. Nonetheless, facilities have been a major long-term investment required to maintain the right to represent the brand in local markets.

There was a period of time where dealership showrooms were expanding. However, with the move towards digital, the need for large showrooms seems counter intuitive.

What is needed to attract customers into our facilities is a different experience, a genuine shift in what we do inside, in combination with what we do outside our facilities.

Dealerships, as we know, are facility silo allocations for new, used, parts, service, and in some cases body shops. The new and used facilities also house the vehicle finance and insurance business, as well as any in-house financing and business development centre activities that some individual dealers partake in.

A few dealers have elaborate rotating photo booths to support used vehicle online sales activities, while a few others have museums and the like.

Virtually all dealerships store winter/summer tires, and most dealerships have varying degrees of coffee shops or restaurants. Also, many dealerships rent off site vehicle storage space in situations where they are not located on large parcels of land. And all of this points to a significant long-term investment to maintain the status as a franchise automobile dealer.

The problem is that it’s largely inside the business.

Digital is changing the way we do business and interact with our brands, the vehicles we sell, our customers, and prospects. Omni-channel is now the operating model for dealerships initiated by consumers.

Change in vehicle propulsion is also changing dealerships. With many brands introducing electrified vehicles alongside traditionally powered vehicles, one would think that pressure would be placed on current dealership footprints to accommodate larger inventories. I do not believe this is necessarily true.

Pressure will come to modify facilities to accommodate electrified vehicles. These vehicles are different and will require facility elements not currently present. The obvious one is charging stations, but to support that initiative, most dealerships will require modification of their overall electrical capacity. In addition, service departments may require different hoists, safety protocols, and technician training and equipment.

Beyond the added capabilities of our facilities, the bigger issue becomes: what type of vehicle will sell in local markets? Will you be able to control the vehicles you order or will you be required to fulfill minimum EV stocking levels?

In all likelihood, EV sales will not be incremental sales to the industry, but rather substitute sales, as your local car park shifts in vehicle propulsion but not in vehicles on the road beyond organic growth. It will take time for this specific vehicle demand to become predictable from an inventory ordering standpoint.

At present we have new inventory shortages driven by supply challenges. I believe the supply challenges are driven by increased sub-component demand, as both traditional vehicles and new EVs require a greater number of parts and the global industry shifts gears, and component supply is challenged to keep pace. This could go on for quite some time— think key fob shortages, for example.

Automotive companies have become technology companies, as vehicles become smarter and smarter to keep up the pace with all the other smart things used by computers (TVs, refrigerators, washing machines, furnaces, thermostats, lighting controls, smart phones, consumer electronics, and so on).

The pandemic caused companies in many industries to adjust orders downward, and producers to cut back production. At the same time, unexpectedly, demand increased quickly, in some cases well beyond pre-pandemic demand.

I think we all agree that dealerships are here to stay. However, dealerships of the future will provide customers and prospects with very different experiences. The definition of car dealership will expand to include all online capabilities, as well as concierge, at home, at office, and over the wire communications and services.

I contend it’s already happened. As a consumer, I view the Internet as an expansion of the physical offering. It’s one and the same in my mind.

So, if 40 per cent of your customers only deal with you online or via concierge, then do you need 40 per cent less retail space? If the answer is yes, then what do you do with the overcapacity of your facility?

What about the trend towards pop-up stores? Certain brands use pop-up stores to promote the brand in new areas without the need to contract for retail space on a long-term basis. What does this mean for the dealer facility in that market area?

All things point to smaller facilities, pop-ups and satellite locations—getting closer to the customer so they can experience your products and services, not necessarily visit your dealership.

We have a lot of work to do to adapt to new retailing trends, and to keep our customers captured within the quality of the experiences we provide them.

I think we all agree that dealerships are here to stay. However, dealerships of the future will provide customers and prospects with very different experiences.

Again, brands will not all proceed in the same direction or at the same pace. It’s up to us as dealers to capture the attention and imagination of our customers by giving them unique and genuine experiences, appropriate to the market we serve, and in full alignment with their auto retail shopping preferences.

The full customer retail experience will involve online, in vehicles and in dealership activities designed to capture the imagination and support of your local consumers.

The post Dealerships and customer experience appeared first on Canadian Auto Dealer.

Doing things the good old way might not work anymore.

By the time you read this article, some 18 months will have passed since the dominance of the pandemic took over our personal and business lives in March 2020.

Rolling the calendar ahead, as we move into fall 2021, we now have a highly vaccinated population and are able to regain some of our lost freedoms. However, normal as we once knew it, could be quite different.

The pandemic has had a significant impact on lives that will take more than a few months to overcome. Collectively we will be building a new normal; hopefully a new and improved normal.

Automobile dealers have been largely fortunate these past 18 months. Sure COVID-19 had an impact on our businesses, but not nearly as severe as businesses in other industries. We were designated as essential very early in the pandemic, and in many ways, that put us on a favourable track compared to others.

The CEWS (wage subsidy) program was a welcome relief and certainly helped us manage the downside risk that this pandemic created. But the pandemic also gave many of us an opportunity to look deeply at ourselves, reaffirm our values and principles, and identify changes we needed to make to get back on track.

In a world where fears unfolded right before our eyes, it quickly became clear that we needed to demonstrate the safety net necessary to overcome the general distrust that was developing.

As we pivoted to embrace different ways of doing business, somewhat being pushed by federal and provincial health and safety protocols, we knuckled down to brass tacks and re-examined all of our customer-facing processes and procedures to continue delivering on our customers’ expectations.

On top of that, we examined what people were actually doing, what roles were adding value, and what roles simply added costs with no clear positive outcome. We reinvented basic blocking and tackling in a new world context.

In a world where fears unfolded right before our eyes, it quickly became clear that we needed to demonstrate the safety net necessary to overcome the general distrust that was developing.

It was not, however, just about business. People were changing. We all changed to a certain extent. Employees, customers, prospects, suppliers, parents, children, and families all have adopted temporary and not-so-temporary characteristics. There is a lot of discussion around getting life back to normal.

I believe that desire is more about freedom than going back to the way things were before. Many things from before will not return, but the feeling of normal will; a new normal shaped by the good and the bad we learned during the pandemic.

We will think twice about certain things where before we did not think of them at all. In many ways, we took many aspects of life for granted. Not anymore, or at least for the foreseeable future.

The core of everyone’s life is similar, but the fringes that defined us and made us feel whole might be dissimilar.

One of the biggest changes has been working from home. For most of us, it has been wonderful. No commuting, much less unproductive time, and a refocus on what matters most in our lives.

We are still very productive, but in many ways much more balanced. We do miss social interaction, but a lot of the other stuff that just seemed to accumulate over the years—well, many of us can live without.

We learned to communicate via phone and video conference. We converted travel time to useful time. This will present challenges to return back to the physical normal of yesteryear, while seeking the efficiency and value creation of the new virtual way. It will be a new happy medium.

Another big change has been shopping from home. Many local small businesses pivoted to provide valuable services. Things like grocery home delivery, curb-side pickup of pre-ordered items of all categories like lumber and hardware and alcohol, for example, were all exciting reasons to get out of the house.

Dealership “by appointment only” was extremely well received. Customer satisfaction rose as customers received the individualized services they desired.

All these changes will impact our dealership businesses. From human resource management to customer service, people will demand a different experience, both inside and outside our dealership family. The pandemic taught them that a different way is possible.

As dealers we have businesses to run. The running of that business just became simpler and more complicated at the same time. Simpler, in that we have all trimmed the fat and built a new focus to do only what is absolutely necessary to produce positive value.

What’s more complicated is that people come in all shapes and sizes, and keeping them engaged will occupy more day-to-day attention.

As dealers we must deliver online, offline, omnichannel, digital, manual and more to keep our employees and customers coming back again and again. It’s not easy. It will take the right business focus, training, support partners, and human resource management to win at the game.

The brands we represent are all struggling to define a clear future for themselves. They are the furthest away from human capital touch points, yet they expect you to deliver on their sales and customer satisfaction mandates. They are investing heavily in new vehicle technologies with at best a cloudy vision of the goal line. Daily they ask themselves: “if we build it, would they buy it?”

Forced change is happening big time for brands, and as a consequence, change is happening to you as one of their dealers.

The time has come to get out of the weeds and put some careful planning into your dealership’s future.

Never has working on your business been more important. Our natural instinct is to put our heads down and get things done. However, the time has come to get out of the weeds and put some careful planning into your dealership’s future. Then take the time to get ready for that future.

As we move forward firstly to the months ahead followed by the years after that, we must realize that some things will return to normal and some things will not. Doing things the good old way might not work anymore as you troll for the opportunities the future might hold.

The post Which changes will stick around? appeared first on Canadian Auto Dealer.

For auto dealers, that may not necessarily be a bad thing.

The past 16 months have been filled with stops, starts, restarts, more stops and more restarts. By the time this article comes to print, in the next few months we all should be many steps closer to seeing the responsible and safe management of COVID-19 and its variants.

The percentage of vaccine penetration should be high enough right across Canada to keep the lid on a fourth wave. With warmer weather right around the corner and restrictions slowly being released, we can look forward to improved times with great certainty.

By July, there should be more Canadians vaccinated than not. And by the fall there should be more Canadians with the full vaccine protocol that will hopefully fend off a fourth wave when we all begin to head back inside during the colder months.

What remains, hopefully, will be a relieved consumer, now able to return to some degree of past normalcy—but there will still be tense consumers, showing levels of anxiety in certain circumstances. If masking and social distancing are to continue indefinitely, anxieties will remain, perhaps diminished from pandemic peaks—but remain, nonetheless.

Consumers are only part of the equation. Management and employees will continue to feel the pandemic stresses. Government decisions on in-class versus online learning, for example, will have a tremendous impact on management and employee stress levels. Health and safety regulations will continue to be stringent, many of which will become embedded in regulations for an extended period of time.

Uncertainty will certainly be the order of the day for the foreseeable future.

Dealerships operate as part of lengthy, complicated international consumer supply chains. We are all too familiar with supply chain disruption, for it has caused many delays in product and replacement parts shipments. More importantly it has highlighted the risks and dependencies in global supply chains. This latter point
is not exclusive to automotive, and applies to a host of end consumer products.

Collectively, dealers have proven their ability to respond to elements of uncertainty swiftly and comprehensively during world wars, economic financial collapses, and health and safety concerns—just to mention a few.

Over the past 16 months, many adaptations to amended processes and behaviours have been realized. Working from home and home delivery enabled by digital capabilities have changed consumer behaviour towards procuring certain goods. Offices have been shuttered, and web-based online meetings have become the norm.

Regardless of offices reopening to some degree, web-based online meetings have been largely proven to be a positive way of conducting business and providing services. And although it’s not a full replacement for face-to-face meetings and gatherings, web-based capabilities have allowed many of us to continue working and provided a medium to communicate and exchange critical ideas.

Dealerships have been very lucky during this pandemic; they were quick to pivot and governments were quick to accept how safe dealership protocols were. Not to be lost, vehicles are essential to empowering essential workers, along with the way vehicles were financed, which created an essential need to keep dealerships open.

Our business was well suited to appointment only practices. Fixed operations were always appointment-based and the migration to appoint only for the retail side was very easy for both consumers and dealership employees. BDCs never skipped a beat in maintaining quality communications with customers.

Dealerships have become experts in dealing with uncertainty since the beginning of their existence. Collectively, dealers have proven their ability to respond to elements of uncertainty swiftly and comprehensively during world wars, economic financial collapses, and health and safety concerns—just to mention a few.

Consumers, in turn, have also responded by accepting the pivots provided by dealers. Flexibility, based on addressing various elements of uncertainty, has become the norm for franchised automobile dealers. This pandemic was just one of many uncertainties asked of auto dealers.

Brands also play a part

As franchised auto dealers, we must follow the branding and related processes as prescribed by the brands we represent. This has always been the case. However, the degree changes from time to time and currently we are in the midst of at least one significant decade-long migration.

As brands transition their product portfolio through various iterations of vehicle propulsion and reduced emissions, dealers must continually pivot and adapt. Dealers collectively surprise most other businesses and industry observers at how quickly and completely they seamlessly execute during uncertain times.

Governments also play a part

Governments this time around provided much needed liquidity to keep businesses open and thrive. The CEWS, CERB and other programs have proven very effective in replacing lost cash flow, enabling dealers to keep their doors open. All levels of government played a role, from consumer protection to health and safety protocols and subsidies.

Dealers again are very fortunate in the support they received from various levels of government. They justifiably had a very strong lobby for years, making industry issues known, front and centre.

They are well positioned, when major uncertainty raises its head, to quickly gain the support required to remain part of the solution to keep consumers, businesses, and the economy rolling. This approach recognizes that dealers thrive on uncertainty, and can be relied upon to produce desired results when many businesses could not.

Much of the conversation today has to do with returning to normal. Citizens and businesses alike want restrictions lifted. The only question remains: how will we have changed, and how will we collectively redefine normal?

Many of us have altered our business processes and practices. Some of those will naturally return to pre-pandemic ways, but I contend that many other alterations will become permanent. Again, dealers thrive during times of uncertainty. Dealers make the most of their limited time to reassess past behaviours and migrate to new and improved ones.

For the majority of auto dealers, uncertainty is the only certainty in their day-to-day business lives; it always has been and likely always will be. Conquering the challenges that uncertainty brings is the fuel that keeps us all going.

The post The only certainty is uncertainty appeared first on Canadian Auto Dealer.

Succession planning can be complicated and it involves many moving parts, but whatever you can do in advance, do it now.

All throughout history, ownership and management succession have continued to play an integral role in ground-level operations at automobile dealerships.

The same is still true today; even in the high stakes game that dealerships have become, there are still significant opportunities. One could argue that opportunities today are as significant as they have ever been.

Timing is a significant consideration in today’s evolving business environment.

Succession not only encompasses families — it also covers management buy-outs and consolidation. Remember that succession has two key components: ownership succession and management succession. In some instances, it often requires an injection of cash to properly implement a succession plan.

Successor capability is critical. It’s really not just about the money, it’s about operational experience that in the end, convinces brands to support your plan. All too often, I see succession or even buy-sell requests refused because of the lack of an acceptable operator.

All too often, many believe succession is a small dealer issue. That couldn’t be farther from the truth. Dealerships of all shapes, sizes, and complexity share the same rules and thus the same issues.

Today’s dealerships are complex businesses.

As you know, there are many moving parts and pieces, all of which must be simultaneously managed to provide profitable, high-level customer experiences each and every time, every day of the week, year after year. The business is also constantly evolving, demanding a keen eye and continuous financial and emotional investment.

On the other side, families are also complex. Some siblings love the business and want to make it their career and others go in other directions, having no involvement at all. Although this is human nature, these factors place incredible pressure on parents as they make decisions on wills and other investment decisions.

Equal is not always fair and vice versa. These are gut-wrenching decisions that often lead to procrastination and delays in decision-making. They are also often the source of family disharmony and stress. In many ways, it’s the elephant in the room.

Over time, many dealerships have altered that ownership structure to take advantage of income tax changes and/or OEM requests for control. When it comes right down to it, these can present unworkable situations causing real challenges in delivering on fair versus equal ideals. Plans evolve over time, but often ownership structures don’t. Fixing this problem can be very expensive and not tax-efficient at all.

Succession is an earned right, not a birthright. Dealerships are franchises and must adhere to brand rules contained in executed DSSAs regarding ownership transfers and successor approval. Many dealers leave this too late in the game and find it hard to successfully scramble to gain the approved outcome they desire.

All too often, many believe succession is a small dealer issue. That couldn’t be farther from the truth. Dealerships of all shapes, sizes, and complexity share the same rules and thus the same issues.

Dealer groups acquire the privilege to do this many times over, one for each brand location they represent. Dealer groups deal with management succession very early on, as most brands require general manager approval at time of acquisition. The larger the group, the more the complexity. In some groups, managing factory dealer relations is a full-time job. It’s top-of-mind, day in and day out.

All that being said, every dealer should examine their ownership structure, wills, insurance, and OEM requirements regularly to make sure all are still valid, in sync, and continue to deliver the desired after-tax benefits.

Many of us feel that income taxes will rise and federal and provincial governments will begin to claw back some of the billions of dollars that have been spent, unexpectedly caused by the COVID-19 pandemic. Now may be a time to correct sins of the past, and also prepare your dealership or group just in case those taxes do rise.

The depth of your organization, be it family or professional management, should be on constant watch by dealers. Unforeseen events do happen. And they happen when you least expect them. They can have a devastating effect on day-to-day management and long-term ownership.

These events do not always happen exclusively to the founder or older generation, but can also happen to potential successors and their families. This changes the fabric of your organization overnight.

Sure, insurance can provide some necessary liquidity, but more importantly, it’s the bones of your organization that will hold things together. Having solid bones is not just smart business, it’s smart succession planning.

Timing of implementation is important. Pulling the trigger on your plan means having all the elements in place. The plan has several elements that can be implemented at different times. It’s like a continuum. Elements like will, powers of attorney, and life insurance can happen quickly.

Other elements such as ownership transfers can take a longer period of time. Third party approvals, successor preparation and income tax maneuvers can take time. Dealership valuations, real estate appraisals, holding companies and family trust creation, shareholders’ agreements, and family participation plans all will proceed at differing rates.

Often trying to get everything nailed down before succession activities begin is a recipe for delays. Getting something in place is what’s important. Unanticipated events won’t wait until you’re 100 per cent ready. Get it done now — or what can reasonably get done. If needed down the road, elements can always be amended or altered.

Involving your successors in the planning is as critical as knowing and documenting what you and your spouse want to happen in the future. After all, you will in many ways be changing their life and asking them to step up and operate the business for the decades ahead.

This is not something you can do solely yourself; unless you have the in-house expertise, you will need to engage professional help. You will need legal, accounting, tax, insurance and strategic expertise on your team. You will need to involve your brand to ensure there will be no surprises or delays on the road to execution.

Many of our personal affairs are complicated. I know it’s a cliché, but no two situations are the same. That’s because people are different, have different marital and family dynamics. Also, brands can behave differently and change over time as their leadership changes. And successors do alter their plans as well.

Succession is not easy. In fact, it’s quite complicated. This complication does not change once your plan is completed.

Succession is not easy. In fact, it’s quite complicated. This complication does not change once your plan is completed. It’s always a wide-open book, as circumstances change, anticipated timing changes, and rules and regulations change. The only time the complications stop is when you sell your business and convert your wealth into cash.

Being aware of the ins and outs of succession planning might seem daunting, but taking baby steps starting today will ease the burden and keep the wheels rolling.

The post Succession: the ins and outs appeared first on Canadian Auto Dealer.

The automotive retail buy-sell market is ripe for the picking and selling of dealerships.

In normal times, “hot, hot, hot” would refer to trips to the sun-bleached islands, walking barefoot along the sandy surf and sipping your favourite cocktail. The pandemic squashed that vision for most of us — at least for this winter. “Hot, hot, hot,” in the winter of 2021, applies to the buy-sell market for automobile dealerships.

The question I get asked the most is, why is the market so hot? What is creating the apparent frenzy? Why is the interest so high? It’s hard to land on one specific reason. The truth is that there are several reasons all combining to create an atmosphere of uncertainty for some, and opportunity for others.

If you recall, going into March 2020, there was a lot of optimism in the year ahead — and yes there were a number of buy-sells at various stages of the transaction cycle. This all came to an abrupt stop in mid-March 2020 with the arrival of the uncertainty created by the pandemic.

Everyone is expecting the next federal and provincial budgets to introduce tax increases. Get the deal done now!

Economically, the Canadian Emergency Wage Subsidy allowed many dealers to experience a softer landing than was anticipated a year ago. Most jurisdictions in Canada allowed for partial dealership operations, designated as essential business. This helped prop-up dealerships allowing them to continue to operate with heightened industry-wide benchmark health and safety practices.

While our dealerships at least had some of their doors open, collectively we all re-examined our expenses and the myriad of processes that had expanded over the years and made significant adjustments. As the year progressed, bottom lines improved, partially from the impact of CEWS, but as importantly, a new profitable way of doing business emerged.

Governments at all levels opened their wallets and handed out much needed support to Canadians. In the short-term this provided much needed cash injection into the economy. As this continued, many of us wondered just how this was going to be repaid, if indeed it ever needed to be repaid and when. The undertone of higher corporate, personal, and value-added taxes circulated in the minds of many business-people.

For someone thinking of selling before the pandemic or as result of the pandemic, the urgency to finalize a transaction was brought to the forefront. Everyone is expecting the next federal and provincial budgets to introduce tax increases. Get the deal done now!

The move to electric has many dealers concerned. Not about the vehicles themselves, but more about the additional investments required in facilities and equipment without a solid business case to show payback.

Non internal combustion engine sales have been increasing in Canada, but still are below five per cent of annual vehicle unit sales. Although there are government targets for climate change, many dealers do not see the onslaught of customers looking to buy such vehicles. There is uneven consumer demand with all areas of Canada behaving differently.

If government regulation and incentives are required to get consumers to try these vehicles, where is the money going to come from? How long will it take to build a stream of demand to make the investments required to start delivering a return on investment?

Some dealers are concerned about the cost of digitalization and the disruption of traditional business generation that could be introduced. Brand direct-to-consumer interest, potentially reducing dealership margins and changing the financial fundamentals of dealership operations, has kept some dealers up at night. Here, all brands are not equal. Some brands are open about their plans, and others are not.

Dealers do not want to wake up one morning to find out that their traditional position has been marginalized by their brand. Without a clear vision of how the dealer network will participate in the future, some dealers come to the conclusion that it’s time to get out while there is still opportunity.

Dealerships still produce a lot of cash and will continue to do so for decades to come. Sure, there will be ups and downs, but the overall has been very positive and many believe it will continue to be so.

New entrants into the consumer and commercial vehicle space are taking dead aim at the dealership experience. They advocate a new way of buying a vehicle that is far superior to using a traditional dealership. Those of us in the industry know that great experiences happen at dealerships right across the country day in and day out. Yet the media and new entrants continue to challenge, and it gets quite tiring when the challenges are not based on reality.

Interest rates have been low for a while and have dipped lower since the inception of the pandemic, making financing cheap to access. This spurs on the buyer-demand side of the equation. Vehicle buyers are able to acquire more for the same price they had been paying. Many home buyers have entered or invested in new homes. This has spurred on both the vehicle and housing markets. Some wonder if this is sustainable and what the advent of higher interest rates could have on affordability and spending power.

Low interest rates also are behind the buyer demand for dealerships. The difference between cost and potential profit opportunities has widened, making buyers seriously consider acquiring strong cash flows for minimal costs.

Some dealers are just plain tired. Perhaps succession plans have fallen through. Perhaps there is no one to take over. Perhaps they are old enough and it’s time to consider retirement. Perhaps general managers looking to invest cannot raise enough capital to make such an arrangement, and its related risks may be appealing to the incumbent dealer.

Many dealers are not interested in financing their own departure. Real estate is always a stumbling block, as dealerships normally have tremendous value. Do I sell? Or do I remain the property owner and enter into a long-term lease? Will my estate beneficiaries want to be landlords?

On the buyer side, many current dealers are looking for local opportunities, others for strategic acquisitions, and some are looking to take advantage of today’s dealership pricing. Dealerships still produce a lot of cash and will continue to do so for decades to come. Sure, there will be ups and downs, but the overall has been very positive and many believe it will continue to be so.

So why is the market “hot, hot, hot?”

I’ve tried to cover some of the obvious reasons, and there are many more. Over my career I have learned that regardless of the facts of the day, someone always sees risk and someone else always sees opportunity.

That’s the beauty of free enterprise and entrepreneurship. It might not be the “hot, hot, hot” you are accustomed to, but then again, nothing has been as it was before mid-March 2020. You might still be wearing your bathing suit and flip flops, but there is no beach. Just a computer screen, a desk, and headphones broadcasting live from your home. How the world has changed.

The post Hot, hot, hot! appeared first on Canadian Auto Dealer.

2020 turned out to be a year of accelerated digitization, created by the need to keep people safe.

In an effort to restrict physical movement, people greatly altered their daily behaviour and traditional norms for both living and working. Prolonged periods of change subliminally affected us all.

During the same period, we witnessed a forced transition to e-commerce indirectly mandated by governments, openly accepted by consumers, and hastily adopted by businesses in general.

This was to gain greater control over our short-term survival. Retailers of all shapes and sizes ramped-up their own online activity, pivoting to a host of delivery options including curb-side pick-up and home deliveries. Consumers followed in droves.

For automobile dealerships, it was a hurry-up offence for most. Sure, everyone had some degree of digitization on their radar screen, but in actual fact most had made little pre-pandemic progress. Dealer groups definitely had the advantage there, but some of them also struggled — even with their vast resources.

The end result however, in some ways, justified the means. Many dealerships significantly advanced their digital cause in an attempt to score points with consumers and emphasize their local value. As we have become accustomed to, the consumer was dragging us along. Many of us replaced the act of kicking and screaming with some pretty slick marketing messages.

While dealers were frantically manoeuvring to the front of the line, so were brands. Brands, always keen to connect directly to consumers, made their own advances with digitization. Some brands did this in unison with their dealer network, as true partners do. Unfortunately, others advanced their end-run strategy to add more meat to their direct-to-consumer approach, at the potential expense of their dealer network.

Prior to the pandemic, the automotive industry was in the early stages of reinventing itself from top to bottom. Digitization was at the core of this reinvention. The pandemic certainly has added greater uncertainty and delays as the industry did the two-step dance for much of the past year.

As I wrote in Driving the Road Ahead: A View Into the Future of Canadian Automobile Retailing, brands are in for the fight of their lives. Canada is only a very small portion of the global automotive market, and offers a relatively risk-free environment for brand experimentation. Trying something in Canada gives brands the opportunity to work out the kinks without materially impacting global operations, if their direction turned out to be unsuccessful.

Brands also use other global geographic locations the same way, making it more important than ever to keep an eye on international developments as leading indicators of possible future retail developments in Canada.

There are so many moving parts and pieces to our industry, impacted by various stages of digitization. Under normal circumstances, it could take decades to truly effect material change. As we know, 2020 was anything but normal and 2021 could provide more of the same.

Many initiatives are being advanced to the front of the pack faster than others. Digitization adds the potential to increase both speed and confusion. Some initiatives are more developed than others, with many of these initiatives leaving dealers and often consumers with more questions than answers.

The industry is facing many headwinds that cause decision-makers to amend their strategies on the fly. Natural obstacles and poorly researched facts and behaviours serve as potholes on the road to evolution. In a perfect world, our complex industry based on assembling, selling, maintaining, and repairing vehicles is supposed to move forward in lockstep.

However, as with all rapid change, inconsistency and varying speed of execution in any complex environment, often results in an atmosphere of instability along the way — before success is achieved.

Canada will feel increased climate change pressure. U.S. President Joe Biden will advance his climate change mandate that will no doubt exert tremendous pressure on vehicle manufacturers’ shift to significantly improve fuel efficiency and accelerate the vehicle electrification movement. This will cause brands to make some difficult choices as they gamble their fortunes on the future of transportation.

Raising capital is challenging enough, but without a clearly articulated electrification strategy built on the foundation of digitization, it will be near impossible. With Tesla showing a market capitalization equal to all other automotive OEMs combined, there is much work to do.

As manufacturing and assembly attempt to shift towards greater electrification, challenges from labour and their unions will step in to block and delay forward moving attempts.

We have just witnessed how labour unions and governments can be effective in changing brand direction, with recent announcements by GM to start electric vehicle production in factories previously designated to be shuttered here in Canada. The question remains, how will Biden’s “Buy America” force impact the long-term of GM’s recent announcements?

To my mind, America includes Canada in so many ways. For automotive, when simply looking at supply chains for instance, we operate a fully integrated and intertwined North American industry. We’ll have to watch how this develops in the coming months and years.

Politics aside, some foundational retail issues are being challenged. Consumers are looking for fast and easy digital transactions. Brand direct-to-consumer has tremendous implications, both positive and negative, for all sides. We’ve been talking about this for a while now, but the pandemic years have and will continue to greatly amend the landscape. I believe consumer behaviour has taken a significant shift.

Always quick to adapt to anything internet and smartphone based, the consumer bandwidth for alternative retail models has exploded. Curbside pick-up, online purchasing of just about anything supported with efficient door-step delivery and product returns, appointment-only major item retailing, and a new broad-based belief in the importance of health and safety (to name a few) have greatly changed consumer and retailer behaviour in general.

The long duration of some government mandates may very well have altered the Canadian consumer fabric. I believe a strong digital framework in our industry is inevitable — just like the Field of Dreams mantra: “if you build it, they will come.” I believe we are at the point that if we don’t build it, they will not come.

It’s a challenge for sure. Not all consumers are looking for the same experience. Some will continue to want the traditional approach, while others will be looking for a true online, offline omnichannel experience, and still others will want a 100 per cent online experience.

In all cases, most consumers want a personalized experience that is seamless — regardless of how they choose to interact with us. Customers do their homework and don’t want us to waste their time. They want a retail experience that makes use of their homework efforts and respectfully employs it as the foundation for further discussions and transactions, seamlessly their way.

In many ways, there is not just one approach, but rather there are many hybrid buying models currently developing. Our trick is to offer this flexibility to all our customers: not requiring them to adopt our process, but rather we should have the capability to easily and seamlessly adapt to theirs.

Our funnel needs to be very broad, but our backend processes need to be crisp, tight and deliberate, ensuring total consistency in delivery of the customer experience. At the same time, we need to ensure sound profitable business operations.

We can still have influence over consumer choices. It boils down to how we make use of full digital capabilities to customize their buying experience. But make no mistake, we are not selling anymore. Rather, the consumer is buying. This is a fundamental shift, and digitization is the engine that will propel our evolution to the next level.

The post Digitization is the engine propelling our evolution appeared first on Canadian Auto Dealer.

Looking ahead, it’s going to be a year of shifting sand and changing tides. But dealers are used to that.

After a dreadful 2020, Canadian automobile dealers are looking for better days ahead. Our business, as we knew it, shifted immensely during the pandemic of 2020, and that will more than likely be the playbook for 2021 as well.

More of the same, with more pivots than a running back, constantly changing direction to avert tacklers. The goal line seems further and further away as we continue to trade yardage as the months go on. Predicting the future has never been so elusive unless you happen to be an OEM where the future is always bigger than reality.

For certain brands, some dealers have entered 2021 with planning volume targets so high that they seem impossible to reach. For others, revised targets do not provide the necessary volume to support historical and current investments made. Only time will tell what actually happens.

Dealers have always been accurate in taking the pulse of their local markets. OEMs, on the other hand, have a significant role to play in creating the macro product environment that consumers will hopefully embrace. All OEMs will not be successful in achieving their targets.

From my vantage point on the sidelines, it’s like watching two games at once. One game is steeped in the realities of local markets, while the other is focused on global positioning. Listening to OEMs, they speak of online sales dominance and vehicle electrification.

Retailers, on the other hand, look forward to tire season to get service customers in their bays and hope to have the right inventory at the right price to attract buyers. It’s like two different worlds. Is this the sign of things to come?

As we know, all brands are different. Many times, all brands — even different brands under the same OEM roof — behave differently. The automotive world is in the midst of the biggest product shift of the past century and no one really knows how or when this is going to shake out. It could take several years or even decades for some brands to build their new brand identity.

And although we call ourselves “car dealers,” most of us have blown past that moniker years ago: we operate several businesses that fortunately have different cycles and offer consumers opportunities for varying experiences.

Consumers are moving at a different timetable. The pandemic has changed some of the rules (perhaps temporarily), but for some the changes could be permanent. Dealers will have no choice but to be flexible and pivot at the drop of a hat.

Dealers have always been resilient. This was proven in spades during the year 2000, and again in 2010, and yet again in 2020. Time after time, decade after decade, once given up for dead, dealers rise from the supposed ashes to live another day.

My advice to you is to stop reading the headlines. Very few pundits actually understand what constitutes a car dealership. The fact that we operate several businesses under one roof escapes many observers. And although we call ourselves “car dealers,” most of us have blown past that moniker years ago: we operate several businesses that fortunately have different cycles and offer consumers opportunities for varying experiences.

When new vehicle sales are down, used vehicle sales increase. When the retail side of the business struggles, our parts, service and body shop businesses hum right along. When in-store visits are challenged, we quickly pivot to online. Our in-house finance business is a hedge since most Canadians need to borrow money to buy or lease a vehicle.

Then there is the do-it-yourself side of the business where dealers provide parts and accessories to the aftermarket. Many of us have vehicle rental, ride-share and car-share opportunities in our sights. It’s all about keeping wheels rolling and keeping them on the road regardless of who is driving. So, stop reading the headlines.

And while it’s true that the pandemic has both consumers and OEMs in a tizzy, consumers are showing the head fake like pros — seamlessly moving in one direction, but quickly adjusting to whatever direction suits them. They can run in any direction, at any time, like a lion out to catch Sunday dinner.

OEMs, on the other hand, are students of the business. Yes they hold some good cards, but like school kids watching the older kids playing the game, learning to play a game by watching at recess and actually graduating to the big table are two very different things.

Actually, holding some real cards that are different in each hand while making split decisions is not easy in the beginning — if it ever is. Their lack of in-the-trenches retail seasoning and experience is quickly figured out. Some get good at it and others just decide to play a different game. It’s very different when you’re doing, rather than just watching. Something might look easy until you try it. Ninety-nine per cent of the time, it’s not so easy.

Dealers have learned by and large how to run their dealerships and be successful in their local markets. OEMs are often like painters, with only one colour and one paintbrush regardless of the surface to be painted, lighting and weather implications. Dealers however, carry a very elaborate pallet of colours, styles, and application options needed to weather most storms.

What I am saying is that dealers are beholden to both their customers and also the brands they represent, while brands are beholden to their parent companies. Often the two are not in full alignment. Flexibility is required on both sides of the aisle and both must learn to adjust on the fly.

Think of a quarterback lining up behind the centre viewing the defence, stepping back and calling an audible before reaching in to accept the snap. The defensive middle back linebacker, on the opposite side of the field, does the same with the defence alignment, yelling new commands to his on-field teammates.

We must respond in a way that provides clear guidance and support to our employees, respect brand initiatives, and continue to provide the experiences our customers are looking for.

Now think back to 2020. How many audibles did you call? Lots, as the world began to unfold differently than planned, when consumers and governments put forward multiple defences. At the same time, in 2020 you also played defence as the brand you represent called their own audibles, causing you to react with a new strategy.

As dealers, we march to the beat of consumers, our brands, and now government regulation. This will still be the case for much of 2021. And as dealers, we will need to pivot and be flexible. Constant change will be facing us from so many directions. We must respond in a way that provides clear guidance and support to our employees, respect brand initiatives, and continue to provide the experiences our customers are looking for.

In many ways, we are not completely (100 per cent) in control of our businesses. We are, after all, franchisees with serious skin in the game. We must continue to be flexible and pivot on-demand to protect and grow our invested assets and human resources.

This attitude will get us to the other side, with our teams being leaner and stronger, and our customers safe and satisfied. This will allow us to continue to build long-term customer loyalty and set us up well for the future that is to come.

Flexibility is the key word for 2021 and beyond.

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